Nick Ainger: As the hon. Lady says, the matter is before the European Court of Justice and the Government are reluctant to comment in any detail on the temporal limitation. However, it is interesting to note that no one raised any legal objections in the oral hearing in the court when the Government applied for the temporal limitation. I assure her, as a Cardiff Member, that whatever the outcome of the ECJ decision the staff at Allied Steel and Wire will not be affected by the temporal limitation.

Nick Ainger: For 18 years, the Conservative Government did absolutely nothing to address this issue. The financial assistance scheme has been expanded from £400 million in 2004 to £2.3 billion starting from this October. It will provide substantial assistance to the Allied Steel and Wire staff and it has been widely welcomed, including by their trade union, Community. We accept that there are issues that have to be resolved in the European Court of Justice, but we are confident that the scheme that is now in place will go a long way towards providing protection for staff who have lost their pensions. On top of that, we have the Pension Protection Fund, which will provide long-term security for people who have invested their savings in occupational pensions.

Peter Hain: Child tax credits, like the employment tax credits, have an administrative cost, but they target the resources on those most in need, including children in Wales and right across the United Kingdom—and I dare say also in the hon. Lady's constituency. The Conservatives' repeated attempts to sabotage the programme—they opposed it in the first place and they would like to scrap it—would leaves thousands of children in Wales and hundreds of thousands of children across the United Kingdom destitute, as they were when the Tories were last in power.

Mark Williams: If he will make a statement on the timetable for the merger of the Welsh police forces.

Elfyn Llwyd: I am grateful to the Secretary of State for that enlightening answer. From 1998 to December 2005, 331 post offices—one in every four—closed in Wales. A further avalanche is expected with the loss of the TV licence contract and the phasing out of card accounts. Yet the main campaigning tool in Blaenau Gwent was a Labour petition to re-open the post offices. Was that not a rather cynical exercise that was seen through by the people of Blaenau Gwent?

Peter Hain: I would be happy to do that. I am a member of my local credit union in Neath Port Talbot. Credit unions do an important job, and there is scope for those who use post offices for banking services to bring extra income and customers into post offices, especially since credit unions offer low interest rates to many people on low incomes. As my hon. Friend suggests, it is a win-win situation for credit unions and local post offices.

Nick Ainger: In fact, in the past year, the hon. Gentleman's constituency and mine have experienced the fastest rise in average earnings in Wales. In the past four years, average earnings in Wales have risen faster than in England. We are closing the gap, especially in the objective 1 area, where there have been increases of 21 per cent. in average earnings in the past four years.
	The problem of the affordability of housing is not unique to west Wales—it applies throughout Wales and the rest of the country. The Government are investing significant sums in tackling that problem. We are ensuring that social housing funds are available, working with housing associations to develop new schemes and considering innovative schemes such as community land trusts. I expect the Pembrokeshire housing association and Pembrokeshire county council to examine those radical and innovative ways of providing affordable social housing in his and my communities.

Adam Price: One of the main reasons why Wales is languishing at the bottom of the wages league under this Government is the loss of high-wage manufacturing jobs. The Labour candidate in Blaenau Gwent said that existing Government policy had failed and there was a desperate need for a new manufacturing strategy. Does the Minister, or indeed the Chancellor, agree?

Tony Blair: Tempting though that occasionally might be, no. I think that it is important that we have one class of Member of Parliament, which is an essential part of our constitution. I hope very much that the right hon. Member for Witney (Mr. Cameron) will rethink his position on this. It is wholly contrary to the spirit of our constitution, but an utterly irresponsible thing to do or propose.

David Cameron: The Prime Minister said yesterday that to date he had received no requests for reinforcements. Does that statement cover equipment, including helicopter lift capacity? What discussions has he had with our NATO allies so that should further combat troops or equipment be required our allies will also make an increased contribution?

David Cameron: At the heart of the whole mission is the reconstruction of Afghanistan. There are many different people involved, including the Afghan Government, the aid agencies and the UN. Last week, the shadow Foreign Secretary suggested appointing a special representative mandated by the UN and approved by the Afghan Government to help to bring those efforts together. The Minister for Europe, said that that was "a sensible suggestion", and I wonder whether the Prime Minister has given further consideration to the proposal to ensure good co-ordination on the ground.

Tony Blair: I agree that it is important that we engage everyone in fostering good community relations and in saying that irrespective of whether people are of one religion or creed or another, we share the British values of tolerance, respect for other people, democracy and liberty. It is important that those values are carried through into every part of our community, and I welcome the help and participation of all political parties in that. Indeed, it is very much to the credit of the political system in this country that all major parties are committed to such a future for Britain. When I said yesterday that I think it important that the Muslim community confronts the issues within it, I did not mean to diminish our responsibility to do our part, too. The fact is that we are all going to have work very hard at rooting out extremism. We face a global movement with a global ideology, and we will defeat it only when we defeat its ideas as well as its methods.

Tony Blair: There has always been a system of parole in this country. I would point out the hon. Gentleman that over these past few years prison sentences have been longer and there have been more people in prison. What is important is that there is consistency in sentencing, and we are working on that with the Sentencing Guidelines Council.

Tony Blair: Again, I do not know the precise circumstances of the situation in the hon. Gentleman's constituency, but I shall be very happy to look into the matter and to write to him about it. I am sure that he would accept, however, that, as a result of the investment that has been put into his constituency and many others, all the measurements for waiting times for treatments are now significantly better than they were a few years ago. But, as I said in answer to a question a moment ago, no matter how much money we put in, there will be a limit, and health authorities and trusts must operate within that limit.

Patricia Hewitt: In the White Paper "Our health, our care, our say: a new direction for community services", published in January, we outlined our proposals to create a new generation of community hospitals and services. Today I am announcing that we will make available up to £750 million of public capital investment to realise that vision, and I am publishing guidance on how primary care trusts can access the money. A copy of the guidance has been placed in the Library, and copies are available from the Vote Office.
	Developments in medical technology and clinical practice are making it possible to provide far more care in local communities, closer to where people live, and even in people's own homes. During the unprecedented public consultation for "Our health, our care, our say", people made it clear that, whenever it is safe and effective, they want more convenient, local and personal services, with more consultations, diagnostic tests and treatments in local facilities. Moving more services out of acute hospitals and into communities will help to improve care for patients, and will deliver better value for money for taxpayers.
	We are already making a major investment in GPs' premises and health and care centres, as well as in community hospitals. A billion pounds of capital has been invested through the NHS local improvement finance trusts alone. We will now take the next step by making up to £150 million of capital available in each of the next five years, starting this year—a total of up to £750 million—for the development of a new generation of community hospitals and services.
	The investment capital will be available to PCTs for a wide range of community schemes, including the redevelopment of some existing cottage hospitals. Services could include in-patient and out-patient facilities, diagnostic tests, specialist clinics, minor surgery, health and social care services for people with long-term conditions, dentistry, rehabilitation and palliative care and other services. For people who are seriously ill or injured, or people needing complex treatments, care will of course remain in acute hospitals, where patients can be treated by specialist teams using the most advanced technology.
	PCTs that want to use the new investment capital will need to engage fully with local people to ensure that services are truly designed for the needs of patients and users. They will also be expected to work closely with other local partners, including general practices and other NHS services, local councils, voluntary organisations and others in the independent sector, to develop effective plans.
	I made it clear in the White Paper that decisions on the long-term future of existing community hospitals should not be made solely in response to short-term budgetary pressures that are not related to the viability of the community facility itself. I have asked strategic health authorities to assure themselves that all PCT proposals for changes to community hospitals are consistent with the long-term strategy of the White Paper: to move care closer to patients' homes, and to ensure that local people have been properly consulted.
	Ultimately, however, changes in the configuration of local health care services in a particular area require local decision-making. Primary care trusts, with their broad perspective across hospital, community and primary care, are best placed to make those decisions in consultation with local people and their SHAs. The new investment fund will make it easier for PCTs to establish the right services in the right places for the people whom they serve.
	PCTs will be able to choose how they use the newly available capital, investing it simply as public capital, extending the scope of their local investment finance trust schemes or adopting a new approach: the community venture, a more flexible joint venture approach that will give a wider range of public, voluntary and private parties an opportunity to pool their skills, or indeed their investment, for the benefit of the local community. It will, however, be for PCTs to decide which model is adopted. Whichever one is chosen, PCTs will of course need to demonstrate that investment proposals are sustainable and can be funded over the longer term. As we said in the White Paper, we expect to see a strategic shift in how the NHS provides care, with a redirection of funding to support the provision of more convenient services in local communities.
	PCTs that already have advanced plans for community services, as many have, should submit them to their strategic health authorities by the end of September. For schemes that are ready to start in the next financial year, proposals should reach the health authorities by the end of December. After that, there will be a regular rolling programme managed through the SHAs.
	This new programme builds on the unprecedented investment that we have already made in the NHS. It will help to ensure that there are even better services for patients, with better value for money, and I commend it to the House.

Andrew Lansley: I am, of course, grateful for advance sight of the Secretary of State's statement, although it has all been trailed in the press beforehand, as usual. The Secretary of State once again claims that she is the saviour of community hospitals.  [ Laughter. ] Well, Labour Ministers have been saying that for four years. The right hon. Member for Darlington (Mr. Milburn) said exactly the same thing in 2002. However, within recent months 80 community hospitals have been under threat of closure or partial closure.
	In January, the Secretary of State said that community hospitals would be safeguarded by the White Paper. Why has that had so little positive effect? We discovered last week with the abortive notice in the  Official Journal of the European Union that the Secretary of State's policy is not even understood in her own Department. As a result of the White Paper, we also know that her policy is not understood or not listened to across the NHS. Why are they simply ignoring her?
	The threat to community hospitals is little diminished since January. For example, in Wiltshire, services have already been lost at Westbury and Bradford-upon-Avon hospitals, and there are threats to Warminster, Melksham and Trowbridge. The Secretary of State talked about the review process, but the strategic health authority in Suffolk did the review process on proposals in the area and said that it would close Walnuttree hospital, St Leonards hospital, the Sage day hospital in Newmarket, Hartismere hospital, the Hayward day hospital in Ipswich and Bartlet hospital, and reduce services at Aldeburgh hospital. That is the result of the review process that that Secretary of State says will happen as a consequence of her White Paper.
	The Secretary of State now offers a capital fund. In some circumstances, capital for rebuilding or refurbishment will be useful and I welcome that. However, can the Secretary of State explain what proportion of this fund will go into providing health centres—her so-called polyclinics—for GPs and out-patients, rather than existing community hospitals that continue to provide in-patient services? Last year the NHS had capital that it did not spend. The underspend on capital budgets by the NHS last year was £1,165 million. The NHS has capital: it is overspending on revenue. PCTs are cutting back revenue and contracts. Community hospitals are closing because their primary care trusts will not commission services from them, because of the revenue shortfall. Can the Secretary of State explain how a capital fund can be a solution to a revenue problem?
	If the Secretary of State wanted to support community hospitals in the way they need it, she would ensure that the plan in the White Paper for unbundling the tariff happened now—not in 2007-08. Will she do that? Will she also ensure that the tariff is split so that part of the payment for patients who are stepped down from the acute sector goes to the community hospitals where they are sent? Will she also confirm that decisions about community hospitals will be reviewed in the way that she describes and will be made specifically in consultation with, and with the agreement of—if they offer it—local GPs? In theory, from the end of this year, practice-based commissioning should mean that GPs should decide where they want to commission services, but the PCTs are pre-empting that and closing services so that they will not be available for GPs to send patients to.
	The Secretary of State said that the fund would be available to the third sector, including charities. I hope that the whole range of charities and voluntary organisations will be able to bid. She mentioned community organisations and I hope that she will make it clear that local private sector and voluntary partnerships can work with GPs to take over community hospitals. Many such hospitals used to be locally owned, because they were established through public subscription. Will the Secretary of State ensure that the assets can be transferred to the third sector and out of the NHS, at a high discount, so that they can be owned and supported locally? That will be as important as the ability to bid on the fund.
	No one can say that health care provision will not change. Care closer to home is a legitimate objective and has been for many years; that is what community hospitals offer. I know from my special interest in strokes that that is precisely what community hospitals can do; that kind of intermediate care bed is exactly what people need to step down at an early stage from an acute hospital. Under this Government, the number of such beds increased between 2002 and 2004-05, but they are now being shut down. There is a complete reversal of approach by the Government.
	Why? Because community hospitals are being caught in a financial squeeze between rising costs in the acute sector and the cost of meeting GP contracts. We told the Secretary of State last year—she admitted it in January—that short-term financial pressures are forcing decisions that are contrary to the long-term interests of the NHS. Unfortunately, that is still happening and she needs to take more measures to stop it. She must give community hospitals the chance to prove their worth and GPs the chance to decide where patients are treated, and she must tell the House why the promises made in January have yet to be fulfilled.
	The Secretary of State did not have the boldness to tell the House today what she told the  Sunday Express last Sunday when she said:
	"We want to make it as easy to access NHS treatment as it is to get a pint of milk. You can pick it up on your doorstep or go to a supermarket...All that's needed is a bit of cash and encouragement."
	Well, back on Planet Earth we know what is really going on. I know what is happening in my own constituency, where services and wards are being shut at Brookfields community hospital in Cambridge; the young people's mental health service is being shut down and the PCT is refusing to fund the hospice at home service. That is what is happening on Planet Earth. The Secretary of State should come back to Planet Earth and resolve those problems for community hospitals.

Patricia Hewitt: Let me give the hon. Gentleman the example of Norwich, which I visited a couple of weeks ago, where the local director of community services and his staff explained that they had had too many community hospitals and too many community hospital beds. They have reorganised services and closed two community hospitals, taken beds from a third and put the services into a new facility in an existing hospital. They have put more staff into the community, so they are looking after more patients in their own homes, as well as in the community hospital. They are giving patients better care, the staff have greater job satisfaction and they are saving money that can be invested in other services. That is precisely what the NHS in Suffolk, Norfolk, Gloucestershire, Surrey, and many other parts of the country that have been overspending, needs to do to provide better services for patients, with more modern, but quite possibly fewer, community hospital facilities and more services delivered to people in their own communities, all of it fit for patients in the modern world.
	The hon. Gentleman asked how a capital fund would help deal with revenue shortfalls or overspending in some parts of the country. Yesterday, I had the opportunity to meet NHS colleagues, my hon. Friend the Member for Selby (Mr. Grogan), and people from the wider Yorkshire area. Their primary care trust has financial problems, but they are clear that, by reorganising services that are currently spread across three or four NHS and local council sites and putting them into one new community hospital, enabled by our new capital fund for which they will bid, they will be able to give patients better services closer to home and save the money that they need to save to live within their very substantially increased means.
	The hon. Member for South Cambridgeshire mentioned unbundling the tariff. Let me restate our commitment to unbundling the tariff: we are working on that, and we will introduce a pilot next year. But it is already perfectly possible for PCTs to contract outside the tariff, thereby perhaps getting better value for money for the community services that they need. In any good consultation on new community services and hospitals, GPs will already be involved; they have to be involved, of course, particularly in anticipation of practice-based commissioning.
	The full range of partners certainly includes the private sector. For instance, it delivers MRI scans in Withington community hospital in south Manchester, which has brought down the waiting time for such scans from months in some cases to just two weeks for most patients, with the report delivered to the GP 48 hours later. That is a superb service. The future of community hospitals can also certainly include the transfer of assets, where that is appropriate and agreed by the local NHS, to a local community charitable trust. That is precisely what is happening with the Wells-on-Sea community facility, which was proposed for closure, but which will now house community facilities. Through such organisations, the voluntary sector and the local community has an enormously important role to play in modern community hospitals.
	The hon. Gentleman ended his speech by scorning the idea of more convenient medical services. The reality is that, with modern medical technology, it is now possible to offer, for instance, some chemotherapy services for cancer patients not only in a community hospital or health and care centre, but in their own home, which is far more convenient and much better for such patients. Renal dialysis provides another good example of that. Thanks to the investment that we are making in the NHS, this capital fund will enable that new generation of services to be provided to our patients.

Kevin Barron: I welcome my right hon. Friend's statement, but is she aware of the "breathing space" project, which is being built in Rotherham? It will bring services for COPD—chronic obstructive pulmonary disease—patients in both the acute and primary sectors under one roof, so that we can treat such lung disease a lot better than it has been treated before. Although that means that the local district general hospital will lose beds and some services, as consultants will work in other places, it will lead to a massive improvement in patient care. Will my right hon. Friend make sure that patients—and the work force, as well—will be consulted in all areas where we will have such changes to replace the great, big, all-singing, all-dancing district general hospitals of the past, which many patients do not need?

Steve Webb: I thank the Secretary of State for her statement. It is always fascinating to step with her into the parallel world that she inhabits, where shiny new hospitals are delivered to a glad and happy local population.
	Something puzzles me about the Secretary of State's statement. When swathes of community hospitals are closed, the Secretary of State does not come before the House, but when they are about to be opened, she does. Can she explain why the closure of community hospitals is somebody else's fault, but the opening of them is her responsibility?
	Does the Secretary of State envisage that at the end of this process—at the end of her vision—there will be more community hospitals than the Government inherited? Can she also clarify whether she will be counting in her total figure former district general hospitals, such as Frenchay hospital, which will be reduced to a community hospital? Will we find that the Secretary of State comes back to the House to tell us that she has opened Frenchay community hospital, while overlooking the fact that she has closed a district general hospital?
	The financing of the new community hospitals might be under local improvement finance trust—LIFT—private finance initiative, or traditional forms of funding, but does the Secretary of State not accept that there has been much criticism of the value for money of LIFT as recently as this week, and of PFI? Is she confident that trusts will not be saddled with long-term financial burdens on over-the-odds terms, compared with more traditional ways of paying?
	Is this process not yet another example of the centralism of this Government? Can the Secretary of State confirm that PCTs will need the permission of health authorities, which will need the permission of Whitehall? Where is the local democratic accountability in this process? Why can the Secretary of State not let go? Why is there a control-freak tendency, so that when she talks the language of localism what she means is, "Whitehall will decide"?

Patricia Hewitt: The hon. Gentleman, for whom I have considerable respect, is talking rubbish today. Whether the local NHS decides to close certain community facilities because they are no longer the right ones for local people, or to open new or refurbished facilities because they are the right ones for local people, should be local decisions. What I, as Secretary of State, am doing is ensuring that the support is in place for such local decisions, and in particular that the capital investment is in place, which many parts of the NHS have told us that they need so that they can reorganise their services—sometimes their existing cottage and community hospitals—in order to give better services to patients.
	The hon. Gentleman needs to focus on the services that are being delivered to patients, rather than on the number of buildings or beds, because not only in respect of acute hospitals, but also of some community hospitals, it is better for many patients if community services are taken into their own homes. That was precisely the point that the excellent nursing and care team in the Norwich community hospital made to me: by reducing the number of beds and putting half of the staff into the community, they were able to give intermediate and rehabilitation care to more patients, some of them in the community hospital, and others looked after by community staff in their own homes. Moreover, they had reduced emergency admissions to the acute hospital by more than 600 in the past six months, thus enabling savings of money that can then be reinvested in better care. That is what the hon. Gentleman needs to look at.
	Of course I will open community facilities, as I did at Prospect Park in Berkshire last week, regardless of whether they replace an old district general hospital—or possibly, old community hospitals—or they are simply new hospitals. The test in all of this, which I invite the hon. Gentleman to support, is to get the best services for patients with the best value for patients and for public money.

Ronnie Campbell: The Blyth community hospital in my constituency is a wonderful community facility, but I have been told on the grapevine—not officially—that the minor emergency centre, which deals with minor injuries, is to close to save money. If we want to bring that sort of care nearer to the people, doing that is not the answer. I remind the Secretary of State that at least 35,000 people depend on this emergency facility; otherwise, they have to go five, six or seven miles to the next nearest hospital.

Quentin Davies: Does the right hon. Lady realise that last week my constituents received the devastating blow of being told by the United Lincolnshire Hospitals NHS Trust that it proposes to withdraw all acute surgery, the consultant-led accident and emergency department, and critical care from Grantham hospital? That news has caused consternation in my constituency, and I hope that I may shortly have the opportunity to speak to the right hon. Lady about it. Does she appreciate that today's announcement that a capital fund is available for setting up community hospitals will be regarded as incomprehensible—and, indeed, hurtful—by my constituents, who have been told that they are about to lose their first-class district general hospital, even though no other such hospital is nearer than three quarters of an hour away?

Patricia Hewitt: There is, of course, an extremely difficult situation in the hon. Gentleman's constituency in the wider health community. Unfortunately, there are serious deficits there resulting from overspending, and the local NHS is having to consider some difficult options, in order to see how it can continue to offer the best possible services to people within the substantially increased budgets that we have given it. Indeed, other parts of the region are having to hold back on their own spending to compensate for that overspending while the problems there are sorted out. I understand completely the concern expressed by the hon. Gentleman's constituents and other local people—I have received such correspondence myself—and I will of course meet him to discuss it. But I hope that he will work very closely with the local PCT to make certain that the best decisions are taken to ensure that the NHS in his community lives within its means and, within that very substantial budget, goes on offering the best possible care to his constituents.

Patricia Hewitt: My right hon. Friend makes an extremely important point, and I hope that her local PCT will come forward with a proposal to use some of the new capital investment. She is absolutely right about the accountability of GP practices for decisions made under practice-based commissioning. We have already made it clear that it is the PCT's responsibility to ensure proper transparency and accountability to local people—and, ultimately, to this House—in respect of decisions taken by GPs and the PCT on how the money is spent, and where services are commissioned from.

Gwyn Prosser: I warmly welcome the Secretary of State's statement about extra funding for small hospitals, but what advice has she got for that health trusts in east Kent that propose to strip away even basic services from Buckland hospital in Dover? That will almost certainly result in its closure, before it has an opportunity to look at the alternatives that such extra funding could provide.

Patricia Hewitt: The hon. Gentleman raises a very important point, and some PCTs have made representations to me about the difficulties associated with the current rules on disposal of assets. We need to look at that issue, and as the hon. Gentleman will probably remember, I have already asked Sir Michael Lyons and the Audit Commission to look independently at the financial framework within which the NHS operates. I am waiting for their report and the recommendations that I hope they will make to ensure that we have the best possible framework, giving PCTs the real flexibility that they need to reorganise services and to use their assets in the best possible way for the benefit of patients.

Mike Hall: North Cheshire Hospitals NHS Trust, in my constituency, is considering reconfiguring services between Halton and Warrington, and the Mid Cheshire Hospitals NHS Trust is looking at reconfiguring services between the Victoria infirmary, in Northwich, and Leighton. Much of what is proposed is very welcome, but the real concern locally—in both towns—is that Halton could lose in-patient activity to Warrington, and that the Victoria infirmary could lose it to Leighton. The reason for the proposal affecting Leighton is that the Victoria infirmary needs capital investment of some £2 million to bring its services up to standard. Will this fund help in that regard?

Patricia Hewitt: As I have said, the fund is for community hospital provision—and I think that my hon. Friend is referring to the need for upgrading in an acute hospital facility.  [Interruption.] Where the aim is to upgrade facilities in an existing hospital to provide better community health services and to meet the strategy set out in the White Paper, the fund will be available. The details—the criteria that we will use—are all set out in the guidance to which I referred.

David Curry: Is the Secretary of State not alarmed at the huge gap that there obviously is between the profession of a commitment to community hospitals that she makes here, and the near universal impression out in the country that community hospitals are under almost permanent threat? Is that impression surprising, given that the Craven, Harrogate and Rural District Primary Care Trust, the chief executive of which she saw yesterday, has halved, literally overnight, the number of beds at Castleberg and Ripon community hospitals, reducing them to a figure below the historical level of demand? Will the right hon. Lady please accelerate the review of the perverse funding system whereby PCTs buy a package of care at the acute hospital and a certain number of days' stay, and if a patient is then transferred to the community hospital the funds do not follow that patient within the tariff, and the PCT has to find additional funds? That is the lifeblood that is being cut off from community hospitals, and that process is responsible for the halving of capacity at my community hospital.

Patricia Hewitt: I think that if the right hon. Gentleman looks at the figures, he will find that large numbers of community and cottage hospitals closed in the years when his party was in government. He will also find that at least as many new community hospitals have been opened as have closed in the years of our Government. As for funding, he is right to say that the tariffs that we pay hospitals for acute services do, depending the operation concerned, include an element of rehabilitation, although often not the full costs of rehabilitation. That is one of the reasons why we are working on unbundling the budget, but even within the current system primary care trusts have considerable flexibility. A large part of NHS funding is not spent on acute services to which the tariff applies, and can be used outside the tariff with all the flexibility that primary care trusts need to deliver services within community hospitals and other community settings.

James Clappison: The Secretary of State mentioned the age of some community hospitals. Is she aware of the case of Potters Bar community hospital? It is a modern purpose-built facility that is barely 10 years old, yet it is due to lose 15 out of its 45 beds when a significant part of the hospital is put to other uses as a result of revenue shortfalls suffered by the primary care trust. Is there anything in the statement to help Potters Bar hospital, or to help the primary care trust with its financial problems? Does the Secretary of State have any other plans to help Potters Bar hospital, or are we to have the ludicrous situation of an excellent modern facility closing for the very type of short-term reasons that the Secretary of State says she wants to avoid?

Peter Viggers: Is the Secretary of State aware that her references to consultation and local decision making will be treated with anger and contempt by many people who have been embittered by an empty consultation procedure of which the Government take no notice whatever? I chaired a meeting in Alverstoke in my constituency, at which 800 people unanimously demanded the retention of the hospital at Haslar, which has excellent facilities. Those are not stupid uninformed people. In many cases, they are former patients who know that the facilities are outstandingly good. Will the Secretary of State, even at this stage, order an investigation by the independent reconfiguration panel into the future of medical services in south Hampshire?

Patricia Hewitt: Yes, we certainly would consider such bids. My hon. Friend is doing outstanding work as chair of his local strategic partnership, so I thank him for that. The community venture model to which I referred earlier is precisely suited to a bid from a partnership of the kind that he describes. Capital investment could come from a variety of places, thus reducing the revenue implications for the NHS in future years. The model is good and it will help to address some of the shocking health inequalities that persist in our country, which are the reason why we are determined to insist on fair funding for different parts of the country with different health care needs.

Keith Vaz: I warmly welcome the additional money that the Secretary of State has announced and congratulate her on her victory over the Treasury in securing it. How will it affect the pathway project in Leicester? As she knows, that project will be downsized by £200 million and the downsizing will fall primarily on the hospital in my constituency, the Leicester general. Will the reorganised PCT be able to apply for money from this fund to deal with any of the facilities and services that it will not be able to provide because of the reduction in funds for pathway?

Patricia Hewitt: As the hon. Gentleman knows, there is, unfortunately, overspending in the NHS in Cambridge and Cambridgeshire. That must be dealt with because it is taking place despite the fact that there is more money than ever before and more growth money is coming in future years. Of course the NHS in his constituency is examining the way in which it can reorganise services. I described earlier the situation in Norwich, where by reducing beds in some facilities and closing two of the older community hospitals, better services are being provided for patients and financial savings are being made that can be reinvested in other services. It seems to me that that is precisely what the hon. Gentleman should be supporting and expecting from his local NHS. The capital will help when what is needed is a reorganisation of services, perhaps across different facilities, the modernisation of existing old buildings, or the creation of a completely new facility that would, for example, allow services to be taken out of the acute hospital and provided more effectively, with better value for money, in the new facility. Although the capital cannot be used simply to cover overspending on the revenue account, it can certainly be used to support a reorganisation of services that will be more cost-efficient and thus help to deal with financial problems.

Mr. Speaker: In a sense, I am grateful to the hon. Gentleman for raising that point of order, which helps me to explain the position. He mentioned how long he has been in the House and he will know that I have been a Member for 27 years and it is important to note that we have not always had a Parliamentary Commissioner, which is a new officer. We must recognise that every hon. Member is entitled to natural justice, which means that when Members put a matter before the Parliamentary Commissioner, they should leave it with him. Until such time as the commissioner reports back, it is inappropriate to raise the matter with the Prime Minister or any other Government Minister. We should bear it in mind that the question put to the Prime Minister was about a specific Minister—the Deputy Prime Minister—and that there is nothing to stop any Member raising with the Prime Minister general matters relating to ministerial conduct or the conduct of an hon. Member. I say again that when it comes to specific cases, if any Member has a complaint before the Parliamentary Commissioner, it is only fair—and the House would expect me to say this—to leave the matter to the commissioner.

Alan Whitehead: I beg to move,
	That leave be given to bring in a Bill to make provision about the reduction of greenhouse gases; to promote energy efficiency and the consumption of renewable and low carbon energy in the commercial and public services sectors; to provide for the Secretary of State to report to Parliament on energy usage in the commercial and public services sectors; and for connected purposes.
	The Bill is, in essence, a simple measure. It requires the Secretary of State to take reasonable steps to ensure that, by 2010, the amount of energy usage in commercial and public sector undertakings reduces by at least 10 per cent. compared with 2005, and by a further 10 per cent. by 2020. It also requires the Secretary of State to take reasonable steps to ensure that such reductions in energy usage are not at the expense of higher carbon intensity in the resulting energy use.
	The measure requires the Secretary of State to produce a report on targets to be achieved for the production of heat and electricity for use in the commercial and public sector from renewable sources, combined heat and power and microgeneration. It also requires the production of an annual report to set out progress towards those targets and state whether they are, in the Secretary of State's opinion, likely to be met, and if not, what additional steps he or she proposes to take to ensure that they are reached. We are all aware of the pressing need to take action on climate change. The most effective way to reduce emissions from energy use that contribute to climate change is to use less energy, and to use what we do more efficiently. We know that the prime users of energy are in the domestic sector and in the commercial and industrial sector in heating and powering the daily life of business and industry.
	We also know that we need to redouble our efforts to tackle climate change. That is now acknowledged with vigour in all parts of the political spectrum. Against that backdrop, it is worrying that the latest predictions about UK CO2 emissions are far from encouraging. The UK will reach and exceed its Kyoto commitments and I was proud that the UK Government aimed to go beyond that by introducing their domestic commitments on CO2 emissions.
	In February, the Department of Trade and Industry published its updated projections to 2010 about UK energy use and CO2 emissions. According to those, the UK was, at that time, on course to undershoot by 9.4 per cent. its domestic target to reduce CO2 emissions by 20 per cent. below 1990 levels by 2010.
	In the following month, the Government published their revised climate change programme, the purpose of which was to put us back on track to achieve that 20 per cent. CO2 reduction. That was acknowledged to be a challenging aim and the document that was produced included a comprehensive series of proposals about how to get back on track. However, the long-awaited document did not appear, at the time of its publication, to be able to achieve that. It was estimated that the new package of measures announced in the programme was sufficient to deliver emissions reductions of only between 15 per cent. to 18 per cent., leaving the UK still 2 per cent. to 5 per cent. adrift of its target.
	More recently, Cambridge Econometrics added to what might be termed the gloom with the publication of the latest edition of "UK Energy and the Environment", which contained its updated forecasts of energy demand and CO2 emissions. The forecast was extended for the first time to 2020. Its conclusion was that, even taking into account the additional measures announced in the updated climate change programme, UK CO2 emissions would reduce by only 14 per cent., compared with 1990 levels, by 2010. In other words, unless more is done urgently, we will undershoot our domestic CO2 target by 6 per cent.
	Beyond 2010, Cambridge Econometrics predicts that carbon emissions are set to rise slightly in 2010-15, but to level off thereafter to 2020. The expected levelling-off between 2015 and 2020 is due to a decline in power generation emissions, but that is offset by the continuing growth in carbon emissions from the commercial sector and transport.
	The Government already accept the primacy of the aim of ensuring that we use less energy. I hope that, when the energy review is published, measures to introduce energy management arrangements for consumers of electricity and gas will feature strongly. In 2003, the energy White Paper described energy efficiency as the
	"cheapest, cleanest and safest way"
	of addressing all the UK's energy policy objectives. Subsequent Government pronouncements have continued to highlight the critical role that energy efficiency must play in reducing our carbon emissions.
	Furthermore, in the energy efficiency implementation plan, which was published a year after the White Paper, DEFRA explicitly acknowledged that action on energy efficiency measures in the commercial sector had been "intermittent and restricted" and
	"not achieving its full potential".
	It also acknowledged that the commercial sector had the fastest growing energy use apart from aviation, principally from space heating and lighting, ventilation and air-conditioning. Other drivers include the energy services associated with the use of information and communications technology. In addition, that sector is highly electricity intensive—electricity has an especially high carbon footprint. According to February's Department of Trade and Industry projections, if no new policy measures are introduced to tackle energy demand in the commercial and public services sector, its use of electricity is projected to soar by a staggering 45 per cent. from 1990 to 2020.
	In the light of the above, the Bill is clearly long overdue. I hope that it will be welcomed by all parties. Indeed, it has received support across the House. Early-day motion 2378 in support of the Bill was tabled only on 15 June, but has already attracted the support of 200 Members of Parliament. The Bill simply requires the Government to take reasonable steps to achieve the reductions in energy usage in the commercial and public services sector that they have already described as cost-effective and practicable. For 2010, that means a reduction in energy usage of at least 10 per cent. compared with 2005, and a further reduction in energy usage of 10 per cent. below 2010 levels.
	The Government have already explicitly acknowledged the need for binding energy efficiency targets by introducing in the Housing Act 2004 a target to achieve a 20 per cent. increase in energy efficiency in the residential sector by 2010. The Bill simply completes the policy picture by introducing similar binding targets not only for the domestic and residential sector, but for the commercial and public services sector.
	 Question put and agreed to.
	Bill ordered to be brought in by Dr. Alan Whitehead, Mr. Elliot Morley, Mr. Michael Meacher, Mr. Tim Yeo, Chris Huhne, Colin Challen, Helen Goodman, David Howarth, Mr. Nick Hurd, Bob Spink, Kitty Ussher and Mr. Edward Vaizey.

Climate change (commercial and  public services sectors)

Dawn Primarolo: I beg to move Government amendment No. 18, in page 22, line 6, at beginning insert
	'An order under this subsection may confer power on the Commissioners to make regulations or exercise any other function,'.

Mr. Deputy Speaker: With this it will be convenient to discuss the following: Government amendments Nos. 19 and 20.
	Amendment No. 121, in page 23, line 3, at end insert—
	'But no order may be made under this subsection on or after 22nd March 2009.'.

Dawn Primarolo: Clause 19 provides for a change in the VAT accounting provisions for sales of specific goods to tackle missing trader intra-community fraud. That fraud is an organised criminal attack on the VAT system, which, in 2004-05, is estimated to have cost up to £1.9 billion in stolen VAT.
	This change of accounting provision, known as the reverse charge, will be introduced once the necessary derogations from the sixth VAT directive have been agreed. It will apply to sales of certain specified goods between VAT-registered businesses. When the reverse charge applies, it is no longer the seller's responsibility to account for and pay the VAT on the sale to Her Majesty's Revenue and Customs, but that of the customer. Subsection (13) of new section 55A, which clause 19 introduces, of the VAT Act 1994 provides for amendments to be made to that Act by Treasury order where it is necessary and expedient for the reverse charge.
	Amendment No. 18 allows a Treasury order under this provision to amend the VAT Act to confer power on the Commissioners of Revenue and Customs to make regulations or exercise any other function. The amendment is necessary to ensure that the power can be tailored to introduce any change in the manner most appropriate to the circumstances. By that, I mean the evolving fraud being perpetrated. I appreciate that this is a wide power, but it is a necessary one, and of course it will receive proper scrutiny by this House.
	Amendments Nos. 19 and 20 reflect concerns highlighted following discussions with the European Commission about the need to ensure that the reverse charge mechanism does not create opportunities for further revenue loss—a matter that I am sure will also be of concern to Members of the House. The amendments allow HMRC to introduce secondary legislation, first, to require VAT-registered persons trading in the specified goods to which the reverse charge will apply to submit reports of those transactions and notify HMRC when they first make supplies of those goods; and secondly, to apply the existing penalties for similar statements in respect of intra-Community sales for inaccurate statements or non-submission of statements, as well as existing penalties for a failure to make any required notification.

John Bercow: As the Paymaster General rightly says, the amendment is widely drawn, and that may be entirely justified. She indicates that the power would be subject to proper scrutiny; can she tell the House whether the provision would be subject to the negative procedure of the House or its affirmative counterpart?

Dawn Primarolo: The affirmative procedure will be necessary. I know that Members, including the hon. Gentleman, fully appreciate the importance and urgency of tackling this fraud and of the Department having the necessary powers. Nonetheless, there should still be scrutiny by the House of those powers, how they are intended to be used and how they are used.
	I will go further and say that the details of the reporting requirement and how it will affect business means that there needs to be discussions with business as well. We have to make sure that there is minimum impact, particularly regulatory impact, on businesses generally. The reporting requirement should be kept to an absolute minimum. The provisions will need to take into account consultation on those elements. Thus far businesses have been totally supportive of the Government's actions—they have been consulted—because they are well aware of the dangers that such fraud poses not only to the Revenue, but to their activities as legitimate businesses that can be undermined by fraud.

Mark Francois: I am very grateful for your procedural advice, Mr. Deputy Speaker. As the Paymaster General said that she was going to accept it, I wanted to take no chances whatsoever.
	As we heard, the right hon. Lady said in the Standing Committee that she was minded to accept the amendment. We have brought it back to the Floor of the House on Report to test her commitment to that, and I am pleased to say that she has honoured her pledge, for which I am grateful.
	I want also to comment briefly on Government amendments Nos. 18 to 20, particularly No. 18, which appears to confer on Ministers a wide-ranging regulation-making power. It is therefore right that we should focus on that at least briefly before we allow the measure to be included in the Bill.
	Clause 19 refers to missing trader intra-Community fraud, or MTIC fraud, as it is more popularly known, which is now a multi-billion-pound problem across the European Union. We debated the issue at some length in the Standing Committee on 11 May, and I do not intend to reprise the whole debate on the Floor of the House, but there are a few points that need to be reiterated in debating these amendments.
	The problem of MTIC fraud has become so widespread that the Office for National Statistics now adjusts UK trade figures to take into account estimates of MTIC fraud. As the ONS points out, by definition the extent of such fraud is difficult to measure accurately. However, HMRC, in a press release dated 26 January 2006, estimated UK VAT losses from MTIC fraud to be between £1.1 billion and £1.9 billion for 2004-05. It is interesting that the Paymaster General used the £1.9 billion figure a few moments ago. In April 2006 the Government announced the first annual fall in VAT revenues since the UK started collecting the tax in 1973, largely because of a significant rise in estimated carousel fraud, which is a particular breed of MTIC fraud.

Mark Francois: I thank the right hon. Lady for that reply. She may recall that when we debated this matter in Standing Committee on 11 May, I pressed her for some clarification based on last year's PBR figures. If I recall correctly, we did not get an updated figure at that time. If the right hon. Lady is saying, having read yesterday's debate, that we will definitely get an updated figure in the PBR this autumn, that is to be welcomed. It would have been more helpful if we could have had an updated estimate for the House today, bearing in mind the importance of the powers that we are about to agree to. However, we look forward to seeing the updated figure in the PBR.
	The Government's solution to the problem, as set out in clause 19, is essentially to introduce a so-called reverse charge procedure for certain categories of goods that can be specified by secondary legislation. This is intended to combat fraud by passing the duty to account to the Government for the VAT further down the chain to legitimate businesses. As the HMRC press release of 26 January 2006, which outlines the process, explained:
	"Under the reverse charge procedure the suppliers of the goods do not account for VAT on their sales when selling to other VAT-registered businesses. Instead, it is the responsibility of the purchaser of the goods to account for the VAT, although they can recover this VAT in the normal way."
	This means that HMRC is not put into a position where it may have to make repayments of VAT where the corresponding tax on the purchase has not been paid to HMRC.
	A similar procedure was adopted some years ago to combat missing trader fraud in the gold bullion market, apparently with some success, and the intention is essentially to apply the same solution here. However, the Government's solution, including that which is set out in the amendments, depends on the Government obtaining a derogation from the sixth VAT directive in order to apply the reverse charge in situations where it was not originally envisaged.
	On 1 June, a little while after our debate on these matters in Standing Committee, the Financial Times reported that the EU tax commissioner, Mr. Lazlo Kovacs, was saying that the UK would most probably receive a positive response to the derogation request. On 7 June, there was an ECOFIN meeting in Brussels, which was rather famously attended by the Chancellor of the Exchequer at short notice. Was the matter discussed there? As we return to the subject on Report, which I welcome, I take the opportunity to ask the Paymaster General to update the House on progress in seeking the derogation that is necessary for the procedure to come into effect. In essence, what is the latest state of play in our negotiations with the Commission on this matter?
	Similarly, when do Ministers anticipate that they will be in a position to issue the orders to implement this element of the strategy? I repeat the question that I put to the Paymaster General in Standing Committee on this issue, which she really did not address at that time. Given the history of our negotiations with our EU partners in recent years, what is our plan B if, for any reason, the derogation is not granted? Given the scale of the problem, what do the Government intend to do then?
	I come now to Government amendments Nos. 18 to 20. As I understand it, the essence of amendment No. 20 is to confer a regulation-making power on Ministers to set out reporting requirements on suppliers in relation to the operation of the reverse charge. Amendment No. 19 appears to be essentially contingent on amendment No. 20, in that it allows for a penalty regime if reporting requirements are not complied with correctly as specified by Ministers in the regulations. This seems reasonable, but why was the provision not included in the Bill?
	Conversely, amendment No. 18 confers on Ministers a relatively wide-ranging regulation-making power in the context of the operation of the reverse charge procedure as a whole. As this is potentially quite a broad power—certainly compared with the other two Government amendments—can the Government give us any examples of how the power is likely to be used in practice without inordinately tipping off the fraudsters? For instance, will the power be used only to specify the types of goods to which the reverse charge procedure will apply, or is it intended to be used more widely than that?
	Given the scale of the power, I had intended to ask the Paymaster General whether it would be subject to the affirmative resolution procedure. However, my hon. Friend the Member for Buckingham (John Bercow), in his usual perspicacious manner, has already elicited that information in an intervention. I am pleased that the Paymaster General has, quite rightly, told the House that the process would go through in practice after the affirmative resolution procedure has been adopted. We thank the right hon. Lady for that assurance, which we welcome.
	I move on briefly to amendment No. 121. The powers to introduce the reverse charge procedure are potentially quite powerful. They are therefore subject to the sunset provision contained elsewhere in the clause. The purpose behind the amendment is to introduce an additional sunset provision with regard to the adjustment of output tax. This seems a relatively non-controversial additional safeguard provision, and one that we hope might be accepted.
	The Paymaster General rightly recalled that she said in Standing Committee that she was minded to grant us the amendment had it been pressed at the time. For the information of the House, the  Hansard record stated:
	"his amendment No. 3 touched on an issue that would not have been in dispute between us."—[ Official Report, Standing Committee A, 11 May 2006; c. 120.]
	The right hon. Lady's more direct reaction, which unfortunately was not captured by  Hansard but which I clearly recall, was, "Oh, I was going to give you that one." Perhaps she will be kind enough, as she has indicated, to grant us that amendment and to allow what is now amendment No. 121 to be incorporated in the Bill.

Julia Goldsworthy: I thank the Paymaster General for that clarification. There is a development beyond the regulations and reporting requirements that are set out in the amendments. If the requirements are to be enforced, they need to be supported by resources. I refer to an article in  The Times of 13 June, in which it is said that there are believed to be 9,000 people involved in spearheading the crime that is known as missing trader intra-Community fraud, but Revenue and Customs has only 500 officers to tackle it. The article points to a lack of resources making very difficult the enforcement of whatever regulations are in place to overcome this fraud. In fact, the article goes on to say:
	"There is even a suggestion that fraudsters believe the risk of detection is so low that they no longer trade actual goods but engage in a 'virtual' fraud where the trade exists only in the bogus documents used to support fraudulent VAT reclaims."
	What efforts have the Treasury made to ensure that it has sufficient resources to enforce the regulations?

David Gauke: I should like to touch on three issues relating to MTIC fraud.
	First, in Committee, the Paymaster General said that the German Government advocated applying the reverse charge generally, but she rightly said that that would create great difficulties for small and medium-sized companies, and was thus unattractive. It has been said, too, that there would be substantial fiscal consequences if we went down that route. Can the Paymaster General confirm whether that is correct? More significantly, I seek reassurance that the reverse charge approach will be neither generally applied nor negotiated away, although one member state is keen to go down that route.
	Secondly, I am concerned about the effectiveness of an approach that requires a reverse charge on certain goods. In Committee, the Paymaster General said at column 135 on 11 May that
	"90 per cent. of...losses from MTIC fraud arise from goods that would be targeted specifically under the reverse charge mechanism".
	She went on to say that that
	"it tends to be small, high-value goods that can be circulated easily—but, of course, they are not circulated."—[ Official Report, Standing Committee A, 11 May 2006; c. 135.]
	I should be grateful if the Paymaster General, drawing on the expertise of Her Majesty's Revenue and Customs, clarified that response. Is MTIC fraud a matter of small, high-value goods being circulated—there is, however, a missing trader, so there is VAT fraud—or is it a matter, as the hon. Member for Falmouth and Camborne (Julia Goldsworthy) suggested, of virtual transactions in which goods are not circulated at all? If the latter, it would be easy for fraudsters to move from the small, high-value goods to which the measures apply to other goods and services, so the Bill's provisions would not be as effective as we would all like.
	Thirdly, the Government have attempted to reduce MTIC fraud by toughening up the VAT registration process—the Paymaster General will recall that I asked a question about that in Committee. Since then, I have tabled written questions on the issue, and I understand that in the spring months, only 65 per cent. of VAT registration applications were completed within the target 21 days. Can steps be taken to improve and speed up the VAT registration, because it is worrying that it takes a substantial period to register? Complaints about registration come not just from applicants in the high-risk sector of small, high-value goods such as computer equipment and so on but from other sectors. Again, I would be grateful for the Paymaster General's comments.

Mark Hoban: Both amendments seek to amend the deadline by which group relief claims can be made in regard to losses made in other European economic area countries where the group relief payments are to offset profits incurred in the UK.
	The background to schedule 1 is a case involving Marks and Spencer, which sought to use various provisions of European treaties to enable losses incurred in other EEA territories to be offset against profits in the UK. The European Court of Justice found in favour of Marks and Spencer, albeit with strict limitations on the circumstances in which that relief could be claimed. There were several issues on which further guidance was needed, including the timing of making a claim, which is the subject of both amendments.
	When we discussed these matters in Committee, the Government approached the task of implementing the ECJ's judgment and a subsequent judgment by Mr. Justice Park, who was asked to rule on specific elements of the ECJ's judgment, including the timing of the claim, as restrictively as possible. They sought to narrow the circumstances in which claims could be made, whereas one of the arguments that I made on behalf of the Opposition concerned effectiveness.
	In Mr. Justice Park's later judgment on the case, he commented:
	"A principle that runs through the whole of community law and has been enunciated by the ECJ in numerous cases is the principle of effectiveness: procedures in Member States must not render practically impossible or excessively difficult the exercise of rights conferred by Community Law".
	That is the principle of effectiveness, which I want to explore.
	The ECJ conferred upon UK companies the right to claim group relief in certain circumstances on losses incurred by subsidiaries in other EEA states. That is enshrined in schedule 1, but we need to consider whether the procedures set out there meet the terms of Mr. Justice Park's judgment—whether they
	"render practically impossible or excessively difficult the exercise of rights conferred by Community Law".
	I would argue that the time of the claim does make it practically impossible or excessively difficult to exercise the rights.
	We should remember that UK companies claiming group relief on UK losses have up until two years after the end of the accounting period in which those losses are incurred to make a claim. One might ask why they need two years. I suspect that there is no scientific reason for that, but it enables groups to go through the necessary steps. It enables them to draw up the accounts of subsidiaries and determine the scale of any losses incurred. It enables them to revise accounting estimates, and to assess the write-down in the value of assets, such as stock and debtors; and it allows the parent company to calculate the extent to which losses can be carried back against profits made in earlier years. The auditors can audit the accounts, and any adjustments between accounting and taxable profits or losses can be made. Companies need to go through a drawn-out process to assess such profits, to ensure that the auditors have signed off such profits and to calculate taxes and profits properly.
	I have a degree of experience. I have worked as an auditor and with companies in preparing their accounts, so I understand why the exercise is not straightforward or quick. My problem with the way in which the Government have introduced the Marks and Spencer judgment in schedule 1 is that without a gap between the year-end and the filing of the claim, it would be virtually impossible for any business to submit a robust claim that would withstand scrutiny from Her Majesty's Revenue and Customs. I hope that the Treasury will acknowledge that the process of making a group relief claim is not straightforward.
	The Marks and Spencer judgment, which involves a company making a group relief claim in relation to losses incurred in another EEA country, adds a further layer of complexity. Where there is any prospect of losses incurred in EEA territory being carried forward against profits, the losses cannot be claimed, so a business will have to have made decisions about the future of that loss-making company—it may have had to close it during the course of the year, or it may plan to close it down in the next accounting period.
	Where there is any prospect of such losses being offset against future profits, those losses cannot be claimed through group relief against the profits of a UK company. More time will be required for businesses to make those claims, a more thorough investigation will be required and the process will be longer. One cannot simply press a button in an overseas territory at the end of the financial year and produce perfectly formed accounts and a group relief claim.

Edward Balls: As I have said, the company has a two-year period to make a claim. The issue concerns the date at which the issue of the losses from the foreign company being judged to be unrelievable in the foreign tax jurisdiction. Once that date is decided, there are two years in which to make the claim. We are in danger of confusing two different concepts—the two-year claim period and the loss period, which relates to the tax year when the decision on unrelievability was made. There will still be two years for that assessment to be made and for the relief to be claimed back into the UK tax jurisdiction and against UK profits. The idea that an immediate assessment calculation will subsequently have to be delivered to the Revenue at a particular point in time is not in line with what we are seeking to do. The claimant company will have at least two years to claim relief, mirroring current rules for UK group relief. As I said, the difference is that at the time of the claim the claimant company must look back to the date immediately after the loss period to see whether there is any possibility of relief at that time. It is true that Mr. Justice Park decided in his High Court ruling that the relevant time was the date on which a claim was made by the UK-resident company. However, that is not a settled point; it is still subject to appeal. His judgment also considers past claims to group relief, whereby the current legislation sets out the rules that are to apply to claim periods after 1 April 2006.
	Amendment No. 15 would provide a fiscal and financial incentive to delay claims until the last possible minute. Moreover, since the ability to claim can depend on whether an inquiry is open, companies would have an incentive not to settle inquiries. Those factors would sit uneasily with the Government's compliance objectives and with businesses' oft-repeated requests for certainty.
	Amendment No. 122 would make the relief more generous than that in the Bill by effectively giving access to up to three years' worth of losses rather than one. That would go beyond the ECJ judgment. Moreover, it would substantially increase the extension's cost to the Exchequer, from the £50 million estimated in the Budget documentation to £150 million. That is not a concession that we seek to make, nor is it necessary given the distinction between the claim period and the loss period. The amendment could facilitate a form of loss shopping, with companies putting their losses into the state with the most generous filing deadline. It would also cause many practical problems for business and for Revenue and Customs, as filing dates vary from country to country.
	In short, both amendments would remove important protections in the Bill at substantial cost to the Exchequer. I agree with my hon. Friend the Member for Wolverhampton, South-West that the concerns of the hon. Member for Fareham are based on a confusion between two different concepts. I hope my remarks enable him to assure his friends in the industry that their concerns are not justified and to withdraw the amendments.

Amendment proposed: No. 98, in page 171, line 40, leave out 'partly' and insert 'mainly'.— [John Healey.]

Theresa Villiers: I turn first to the Government amendments in this group on taxation of leases—amendments Nos. 21 to 26. Government amendments Nos. 24 to 26 provide some useful technical clarification of schedule 8, which introduces a completely new framework for the taxation of leases, in relation to the backdating of the provisions. The Opposition have no objection to those amendments being made.
	I particularly welcome amendments Nos. 21 to 23, since they are virtually identical to amendments which I tabled in Committee and which the Financial Secretary graciously said that he would look into. In three places, the Bill imposes a motivation test. The formulation usually adopted in anti-avoidance legislation asks whether the purpose, or one of the main purposes, of entering a relevant transaction is that of obtaining a tax advantage. By contrast, under schedule 8 it is sufficient if the Revenue can show that the circumstances of the case are such that it would not be unreasonable to conclude that the purpose of entering the transaction is to gain the tax advantage. Under the traditional formulation for motivation provisions, it is for the Revenue to prove its case in court—that is, that obtaining the tax advantage was the purpose of entering the transaction. It would have to prove that on the balance of probabilities, according to the normal civil standard of proof. However, under the formulation chosen in schedule 8, the Revenue would no longer have to prove that tax avoidance was one of the motivations—it would have only to show that it was not unreasonable to reach that conclusion. That seems to allow for the possibility that the Revenue might succeed despite failing to show that the actual purpose was to obtain a tax advantage, if it could show that it was not unreasonable to conclude in the circumstances that that was the motivation. It would then be up to the taxpayer to show that the relevant tax inspector's decision was unreasonable in the circumstances. That alters the ordinary onus of proof and therefore gives rise to significant problems.
	I am grateful that the Financial Secretary has reviewed the matter and decided to remove the formulation that I mentioned and return to a more orthodox approach that requires the Revenue to prove that tax avoidance was the motivation. I hope that that change of approach by the Government will be reflected in future and that the "not unreasonable in the circumstances" formulation does not become the norm in tax law. That was one of the main anxieties raised with me by organisations such as the Law Society, which was concerned not only about the impact of this measure in terms of the taxation of leases but about the possibility of its becoming the standard form for drafting anti-avoidance provisions.
	I am positive about the Government's amendments to schedule 8, and I need only delay the House with a few remarks on the schedule. The Opposition still have serious reservations about the new framework for the taxation of leases. Although it is improved by the Government amendments, we are concerned that the abolition of tax incentives for leasing environmentally friendly equipment could harm the battle against climate change. The administrative costs of proposed new section 70Q(2)(d)of the Capital Allowances Act 2001 could be excessive, with lessees forced to establish the tax position of their immediate lessors and superior lessors; and, if they are overseas companies, their theoretical position in UK tax law, had they been subject to UK taxes. That could be a complex process and is not one that is required by the needs of the Revenue.
	There is a danger that the new provisions on the taxation of leases could interact negatively with the tonnage tax regime. Overall, we are concerned about the considerable complexity of the new rules in schedule 8. We are worried about the impact that the changes could have on the leasing industry, which plays an enormously important role in UK business investment and fixed capital formation. The Finance and Leasing Association has reported that its members provided the finance in about a quarter of all fixed capital investment in the UK in 2004, involving some £93 billion in new business.
	The outgoing leasing rules have proved attractive to foreign direct investors, so their loss might be expected to remove an important incentive to bring business to the UK. We also believe that the shift of capital allowances from lessor to lessee, which is at the heart of schedule 8, will push up costs for the public sector. The NHS in particular has benefited in recent years from reduced costs in leasing equipment, because it can pass on to lessors the tax allowances on those leases which, as a non-taxpayer, it cannot use itself.
	We hope that the Government will keep the new framework for the taxation regime for long-funding leases under review and monitor its impact on the three areas that I have outlined, namely business investment, the public sector, and overseas investment in the UK. We also hope that they will consider seriously the options for simplification, and that they will continue to consult the market participants affected by these rules closely, because of the key role that the leasing industry plays in business investment, and hence in productivity in the economy.
	We acknowledge, however, that the Government have conducted a lengthy and detailed consultation with the industry on these matters, and that they have removed a number of the problems that initially arose from their draft proposals. So as well as graciously conceding an important point today, they have taken steps to remove several difficulties that were present in the earlier drafts.
	My comments on Government amendment No. 98 will be even more brief. The provision relates to schedule 5 and the Government's new framework for film tax, and it seems to provide a sensible, albeit minor, clarification of the provisions. I shall therefore add only a few general remarks about the provisions that the Government are seeking to amend today. There is of course a degree of consensus on the film industry. Members on both sides of the House recognise the importance of making the UK a competitive and attractive place in which to make films, because of the commercial and cultural importance of the film industry, and because it is a highly mobile industry and we are competing with other jurisdictions providing incentives for film makers.
	We all agree that the old section 42 and section 48 reliefs have been abused and that they have to go because they are not providing sufficient value for money for the taxpayer. If we are going to have film tax reliefs, it make sense to focus them on the people who actually make films, as the Bill attempts to do, rather than on those who merely wish to reduce their tax bill—the people whom the Chancellor memorably described as the grey middlemen.
	There are however a number of technical problems with the new structure, such as the blurred edges of the definition of a film production company, and the requirement that such a company be involved in pre-production as well as in principal photography and post-production. We are also concerned about the impact of the rules on TV companies, which cannot claim the reliefs but are still subject to the burdens of the framework, including problematic new accounting provisions.
	Above all, we very much hope that the pattern of continuing changes in the film tax regime that we have seen in recent years will not be repeated in the next Finance Bill. There have been recurring amendments to the regime, and the resulting instability creates serious difficulties for the industry, driving up costs and deterring film makers from coming to the UK. We urge the Government to do everything possible to provide a stable tax framework for the British film industry, and one that will provide much greater value for money for the taxpayer—

Julia Goldsworthy: I beg to move amendment No. 126, page 46, line 29, leave out Clause 61.
	Thank you, Mr. Deputy Speaker, for giving me the opportunity to raise this issue again. I believe that a fundamental problem still remains, and I welcome the opportunity to discuss it again on Report. However, rather than rehearse the arguments that were put forward in some detail in Committee, I shall ask a number of questions to which I hope the Paymaster General will be able to respond.
	Clause 61 seeks remove the tax exemption that existed prior to the Budget, whereby employers who made computer equipment available for private use could do so tax-free, provided that the annual amount of the benefit in kind was £500 or less. Under the new regime, it remains the case that when the personal use of computer equipment is "not significant", it does not need to be reported for tax purposes. What value does the Paymaster General attribute to "not significant"? How much below the previous limit of £500 per year will it be? How will the Government assess what does and does not count as significant?
	The Paymaster General made the point in Committee that the system was being abused—by being extended to include MP3 players, for example. There was a great deal of discussion at the time about what evidence the Government had used when they decided to withdraw the scheme rather than to tighten the definitions. The Paymaster General was kind enough to give examples of websites illustrating how the scheme could be abused, but can she quantify the scale of the abuse? Half a million people have benefited from the scheme, and many family members, as well as employees, now have access to a computer at home as a result. In particular, people found the kind of support provided through the scheme particularly helpful and reassuring.
	Companies involved in delivering the scheme were reporting an increase in uptake, and I do not believe that that was entirely due to abuses of the system. However, if the Paymaster General has evidence to show that that increase was due solely to such abuse, I would welcome that information. However, the Paymaster General rightly pointed out the perceived weakness of the scheme—that it related only to employees, and that vulnerable and isolated groups not in employment could not benefit from it. The Home Computing Initiative Alliance recognised that, and I understand that it was in discussions with the Treasury and auditors about how best to resolve that issue, when the scheme was withdrawn.
	While I recognise and applaud the new digital inclusion team announced in the Committee of the whole House, why were existing partners not deemed appropriate to fulfil the remit that was described? Will the entirety of the £370 million in savings generated by the scheme's abolition be transferred to the new team, or will some of that go back into the Treasury pot? That question was asked in the Committee of the whole House, but I do not see a response to it in  Hansard. Finally, will the Paymaster General provide us with an update on the digital inclusion team's work? On that note, I look forward to her response.

Mark Francois: It is a pleasure to follow the substantive contribution of the hon. Member for Falmouth and Camborne (Julia Goldsworthy). As the House may recall, we debated in some detail the Government's proposal to abolish the home computing initiative scheme, under clause 61, in the Committee of the whole House on 2 May. On that occasion, the official Opposition proposed the deletion of clause 61, which, as I recall, the Liberal Democrats supported. If the hon. Member for Falmouth and Camborne presses her amendment to a Division, we shall remain consistent with our original position, return the compliment and support her amendment.
	On 2 May, I spoke on this matter for some time and, I hope, in considerable detail, going back to the genesis of the scheme under section 45 of the Finance Act 1999. I therefore suspect that the House will welcome the fact that I do not propose to rehearse all that again today. Instead, my aim this afternoon is to re-examine the Government proposal under five fairly succinct—I hope—headings. First, how was the decision to abolish HCI taken? Secondly, what was the subsequent impact? Thirdly, why was an alternative scheme not adopted? Fourthly, what is the tax position now, including such questions as: what now constitutes private use, which can be deemed for tax purposes to be "not significant"? Lastly, what really lay behind the decision all along?
	On the first question, there is little doubt in the industry or elsewhere that the decision to abolish the scheme was taken late in the run-up to the Budget. That is evidenced by several points. In the days immediately preceding the Budget, the HCI Alliance, which represents companies specialising in this field, was negotiating with the Treasury in good faith to see how the scheme could be modified, in order to save it from the allegations that elements of it were being abused. The HCI Alliance was therefore shocked when the scheme was abolished in the Budget on 22 March, while those negotiations were effectively still ongoing. They were not the only ones to be caught out. The Department of Trade and Industry, the scheme's departmental sponsor, was also taken unawares, not least as it was about to roll out the scheme to its own employees, and was promoting it on its departmental website on the day of abolition, stating:
	"The real beauty of HCI schemes is that they have the potential to improve performance in almost every area of the organisation. As well as traditional drivers—reducing cost, increasing profitability—they can also contribute to more recent imperatives such as corporate responsibility, individual learning and workplace development."
	The Department for Work and Pensions, one of the largest employers in government, was also about to roll out the scheme to its staff, and was also blind-sided by the Treasury.
	The announcement also drew criticism from the CBI and the TUC, both of which had actively promoted the scheme to their members. Brendan Barber, the general secretary of the TUC, protested:
	"The Home Computing Initiative has helped thousands of low-paid workers without confident IT skills buy their first ever computer. Unions up and down the country have been promoting the scheme, often linked to training schemes. The sudden closure of the scheme would mean that many hours of voluntary union effort would go to waste."
	Moreover, the matter received no prior formal public consultation and, as the Government's regulatory impact assessment pointed out, unusually, no small firms impact test was carried out in advance of the decision either. In short, it had all the hallmarks of a decision taken hurriedly in the final few days before the Budget announcement, as the printers were straining to print the final version of the Red Book.

Mark Francois: Thank you, Mr. Deputy Speaker. I shall gladly write to the hon. Gentleman on that matter, either one way or the other.
	As for the impact of the decision, take-up of the HCI scheme was just beginning to take off when the Treasury suddenly and unfortunately announced its abolition. Nearly half a million employees around the country had taken advantage of the scheme to help improve their computer literacy and that of their families, which was part of the point of the scheme. More than 1,000 organisations, including public, private and voluntary sector bodies had begun to use the scheme. More than 100 different NHS trusts and hospitals had done so, including King's College hospital and even the Sedgefield primary care trust, as had a wide variety of local authorities, a number of which were Labour-run. Many other organisations were also planning to adopt the scheme, including, as we have heard, two Departments.
	Unfortunately, even for organisations that had already signed up their employees, the benefits will now be time-limited, as once current HCI agreements expire, they cannot be renewed on the same terms. That is confirmed by paragraph 71 of the regulatory impact assessment, which states:
	"Changes to the exemptions for computers and mobile phones were announced in the Chancellor's Budget Statement on 22 March 2006 and will take effect from 6 April 2006. However, those people also participating in schemes based on the law as it applied prior to 6 April will not be affected until the period of their current agreement expires and they enter into a new agreement."
	Therefore, even those people's HCI schemes will run out when whatever agreement they happen to have signed over the past few years reaches its originally agreed termination date. If clause 61 remains in the Bill, they will not be allowed to renew on those terms.

Mark Francois: I thank the hon. Gentleman for his intervention. As he knows, I have quite a lot of time for him. At one level, what he says is correct, if the motive had genuinely been to address abuse. First, however, I do not believe that there was widespread abuse of the scheme, as I shall briefly explain. Secondly, as I hope I shall demonstrate, I believe that the motivation was not to combat abuse per se, and that the Government had other reasons. The issue of abuse has been used as a smokescreen, and I shall explain why. I take his point, but I do not believe that what he describes is what happened in this instance.
	The impact on employment has been estimated by the UK trade body Intellect at around 2,000 job losses. Since the announcement was made, a number of companies operating in the field, including Red PC, Encompass and Evesham Technologies have, sadly, announced redundancies as a result. The greatest overall effect, however, is on the people who will no longer be able to avail themselves of the scheme, many of whom are in modestly paid jobs. When we debated the matter in the Committee of the whole House, I read into the record a series of e-mails and web comments from people who feared that they would no longer be able to use the scheme. I will not go over that again, but in summary, the HCI Alliance estimated that 60 per cent. of the scheme's participants are in blue-collar industries and 75 per cent. pay the standard rate of tax or lower. Three quarters of the people who were using the scheme could hardly be described as rich by any measure. Moreover, the computer supplier Intel pointed out in a letter to me that 21,000 Tesco workers had taken up the scheme, and expressed the view that many of them would not have computers had they not been offered them under the scheme.
	Why was an alternative scheme not adopted? We debated that at some length on 2 May. If the Treasury was generally concerned about the degree of abuse to which it argued that the scheme was subject—and I accept that there was some abuse at the margin—it should have been possible to amend the 2004 scheme guidelines to specify a "positive" list of products to which the scheme and the exemptions would apply in future, perhaps supplemented by a "negative" list of those to which they would definitely not apply. That would have been a way of tightening up the scheme in order to save it.
	There is a precedent. The Government in Sweden have operated a system similar to the HCI for some time, and similar concerns were expressed there about people seeking to exploit the tax advantages by purchasing equipment outside the original spirit of the rules. However, in 2004, rather than scrapping the scheme the Swedes simply tightened up the rules on qualifying equipment. It deemed that only personal computers were allowed, with a maximum of one per employee. The monitor size was restricted to 30 in to avoid the alleged abuse by people using the scheme to buy large-scale plasma televisions. Peripherals and accessories were divided into two categories: those primarily used connected to a PC, such as keyboards and printers—which were allowed—and those whose primary use did not involve a PC, such as digital cameras and MP3 players, which were specifically not allowed.
	Even if the Treasury refused to accept the Swedish example wholesale, as we have argued before, restrictions of that kind would be relatively simple to introduce through modification of the guidelines. The Government simply cannot hide behind excuses such as the difficulty of defining qualifying equipment, because we have already given them an empirical example of that being done successfully elsewhere. Furthermore, that very option was included in the Government's own regulatory impact assessment, under the heading "Refocus the Exemptions". The more tightly defined scheme, which was option 2 in the RIA, still offered considerable revenue savings to the Treasury, while also offering the prospect that the scheme could continue relatively intact. If option 2 had been used, the taxpayer would have saved money against the alleged abuse, while the scheme—still relatively intact—could have achieved its objective of contributing positively to the spread of e-literacy among the population. The Government could have saved it if they had wanted to; their own regulatory impact assessment makes that clear.
	What is the tax position now? Here we see some clarification from the Paymaster General. If the Government are determined to press ahead with their decision, that leaves open the question of the tax position following the introduction of clause 61. Paragraph 22 of the RIA states
	"If significant private use is made of a computer provided for business purposes a tax charge will arise on the private use element based on the value of the computer and the extent of the business and private use. Employers will also be liable to class 1A National Insurance contributions."
	On the day of our debate in the Committee of the whole House,  The Times said in a leading article
	"Treasury officials have promised to take a "practical" view of how much private use should be regarded as "significant". The most practical approach, when the issue is debated in the Commons today, would be to withdraw it. We are watching."
	I very much hope that it is still watching.
	Can the Paymaster General update us on the progress of the post facto consultation with interested parties? Paragraph 74 of the RIA implied that that work would be completed by Royal Assent. As Third Reading is due in just a few hours, and as, following scrutiny in the House of Lords, we might reasonably expect Royal Assent before the end of July, can the Paymaster General tell us whether a solid working definition has been achieved so that employees will know exactly where they stand in relation to tax—which will be very important to them—and employers will not have to endure a complicated compliance burden to try to stay on the right side of the law, as all Members of Parliament would expect them to do?
	What really lay behind the decision? The answer seems very clear: the Chancellor simply wanted the money. The Red Book reveals that the decision to scrap the HCI will raise some £300 million in revenue between 2006-07 and 2008-09. No doubt that preyed heavily on the Chancellor's mind in the run-up to the Budget, given that he is now pledged to borrow an incredible £175 billion over the next six years. Coming from a Chancellor who always likes to wax lyrical about making decisions for the long term, this smacks of short-term decision making of the worst kind. Indeed, we observed the irony during the most recent Treasury questions, on 15 June. The Chancellor himself was berating the Opposition for, in his opinion, not doing enough to encourage investment in computers.

Dawn Primarolo: I shall come to the hon. Lady's points and, if necessary, give way then.
	The investment for the groups that my hon. Friend mentioned was specifically addressed in the digital review and the Low Pay Commission report. I shall come to those points when I have finished explaining why the scheme was not appropriate. It was the correct time for the Government to remove the exemption and better focus support on the groups of people in our community that my hon. Friend mentioned, so as to increase access to technology for the poorest, the unemployed, the elderly and the low paid. Salary sacrifice schemes cannot provide that access.
	During proceedings in the Committee of the whole House, I announced that we would establish a dedicated digital inclusion team. That team has now been set up by the Department for Communities and Local Government, and is working closely with the City of London Corporation. It will champion examples of excellence in using highly effective and efficient information and communication technology to tackle the key drivers of exclusion. It will also promote leadership and understanding and inform decisions.
	I also announced that the Government would change the aims and objectives of the digital strategy to focus on digital inclusion. The Treasury will collaborate closely with industry on meeting the goals of the digital strategy, building on the success of more than 6,000 UK online centres—more than half of which are located in the 2,000 most deprived wards in England. Some 90 per cent. of the population lives within 5 km of one of those centres, and that is precisely the type of investment that is needed to reach those groups.
	It is stunning that every time the hon. Member for Falmouth and Camborne (Julia Goldsworthy) is asked about the Liberal Democrats' spending commitments, we are told that they have a commission and are thinking about it. Then she berates the Government for investment in making progress on tackling social exclusion—

Julia Goldsworthy: I shall be brief. Although the hon. Member for Rayleigh (Mr. Francois) may not approve, I am sure that many other Members will be grateful.
	The unfairness still stands. People who could have benefited from the home computer scheme will not be able to access it and, as has been said in previous debates and again today, many of those people are in blue-collar jobs and low-income households. Businesses have closed down as a result of the end of the scheme, so what confidence can the Paymaster General expect businesses to have in the Government's proposals to extend digital access to vulnerable groups? Why would they support or invest in future schemes, given their experience of the home computer scheme?
	3.30 pm
	The right hon. Lady has not explained why the Government were not able to tighten the definition, when other countries were perfectly able to do so. For those reasons—

Julia Goldsworthy: I very much agree with the hon. Gentleman's last point. I was hoping to intervene on the Paymaster General to ask her to place in the Library the evidence provided to her by the HMRC that the scheme was being used beyond its scope.
	For the reasons I have outlined, I feel that the issue is still significant and I shall press the amendment to a vote.

Edward Balls: I beg to move amendment No. 99, in page 181, line 2, at end insert—
	'Repeal of rent factoring provisions
	A1 (1) Sections 43A to 43G of ICTA (rent factoring) shall cease to have effect.
	(2) The amendment made by this paragraph has effect in relation to transactions entered into on or after 6th June 2006.'.

Edward Balls: These amendments cover two similar areas. They deal with changes to the legislation on "repos"—the name for agreements for the sale and repurchase of securities—and introduce legislation on the factoring of income generally, replacing existing legislation on the factoring of rents from land. Both these areas involve anti-avoidance rules.
	Amendments Nos. 99 to 101 deal with factoring of income generally and are more substantial, so I will describe them first. The ideas behind the rules for structured finance arrangements are not new; they build on, extend and replace legislation introduced in 2000 called rent-factoring. However, the structures that Her Majesty's Revenue and Customs has seen recently are new: they take rent-factoring ideas and extend them to types of receipts other than rents.
	Before turning to the detail, it may be helpful to start by outlining why the amendments are being introduced at this stage of the Finance Bill cycle, rather than on Budget day. The context is that, earlier this year, the HMRC became aware that a major corporation had entered into the new type of factoring scheme to avoid paying tax on significant amounts of income. At that stage, the HMRC was not aware of the detailed mechanics of the scheme, so the Government were not in a position at Budget time to introduce properly targeted legislation. Work continued to ensure that the scheme was properly understood and then on developing a legislative solution.
	On 6 June, my right hon. Friend the Paymaster General announced to Parliament that the Government would introduce amendments to the Finance Bill on Report to ensure that the new type of factoring arrangement would be properly taxed, and that the legislation would have effect from 6 June. On that day, HMRC published draft legislation and a detailed explanatory statement on its website identifying the types of scheme that the legislation would affect. It also invited interested parties to attend a longer open day later in June, with HMRC and Treasury officials, with the object of clarifying the new rules and identifying any areas where they might need to be amended. As I said, this is, in essence, anti-avoidance legislation. The Government do not usually consult about anti-avoidance legislation.

Edward Balls: I was just coming on to explain how the consultation had affected the initial proposals and how consultation had helped us to make better tax policy.
	I was saying that, normally, one would not consult on this kind of anti-avoidance legislation, but because we are talking about a difficult area, we thought that it would be helpful for there to be a period of consultation and discussion about the detail—as long as it was always clear that the legislation would have effect from the date that it was announced, 6 June, and provided that the House was content for these amendments to be introduced on Report. As I said, we held an open day discussion on 20 June, which was attended by about 30 representatives of business and the advisory professions, to go through the legislation and, in particular, to consider whether the exclusions that had originally been built in were sufficient. Those exclusions were to make sure that we did not inadvertently capture appropriate behaviour as we tried to deal with the particular form of tax avoidance relating to this complex way of providing loan finance.
	The consultation process has been constructive and beneficial in identifying areas where changes to the original proposals were needed in order to exclude cases that could be inadvertently caught. The process has been welcomed by business as a way of striking the right balance between protecting tax revenues and making sure that we get legislation right. The main exclusions are for transactions that are already taxed in the way that the amendments propose. That includes finance leases and other similar arrangements such as repos, stock lending and some types of Islamic finance. To put the point beyond doubt, ordinary loans are also excluded. In essence, the new legislation for structured finance arrangements will bring other types of financing arrangements into line with the new finance leasing rules, and so remove what would otherwise have been an anomaly from the tax system.
	I want to confirm in particular that, following discussions, the finance leasing industry is content with the exclusions in the amendments. In response to the hon. Member for Fareham (Mr. Hoban), I should say that it was around those issues of finance leasing that most of the detailed changes to the original 6 June announcement were made. Following those consultations with the industry, we understand that it is content that the exclusions in the amendments provide the right outcome, particularly in relation to any overlap between the leasing rules and the structured finance rules. We think that these measures are a proportionate response to complex arrangements. Had we not acted, several hundreds of millions of pounds of tax would have been at risk. The provisions do not penalise, but put all finance arrangements on a level playing field so that a company's decision on how to finance itself is not driven by tax considerations, but by commercial ones.
	Amendments Nos. 16 and 17 are changes to the tax treatment of sale and repurchase—or, as they are commonly known, repo—transactions. These amendments are the Government's prompt reaction to a recent adverse decision of the special commissioners—the first instance tax tribunal—in a case where there was what is known as a three-legged repo. Clearly, in this case, there was no question of consultation because we were responding to that decision.
	Repos are used widely in the financial markets as a form of a secured loan. They typically involve one party agreeing to sell securities to another, with a related agreement to buy back the securities at an agreed future date at a price agreed at the outset. Ordinary repos involve only two parties: the original holder and the interim holder. The special commissioners held that the legislation for taxing repos did not work properly in a three-legged repo situation and upheld a company's claim to a deduction when, overall, there was no net loss to the group of companies involved. It is very likely that the HMRC will appeal that decision, but it opens up the possibility of companies trying to enter into similar schemes in the hope that the special commissioners' decision will be upheld. The possible cost of that could run into hundreds of millions of pounds.
	The amendments on repos will ensure that such a scheme will not succeed in the future, whatever the outcome of the appeal. The changes will not have any wider effect on genuine commercial repo transactions. This is another example of us acting quickly and fairly, but properly, to deal with tax avoidance without damaging legitimate transactions. I hope that I have assured the hon. Member for Fareham that the consultation has been well handled, and I commend the amendments to the House.

Edward Balls: I am happy to clarify those three issues. Having spent some time reflecting on these matters in recent weeks, it is clear that it is a highly complex area and that changes to legislation in respect of market developments over a number of years has led to very considerable complexity. In future, we will look to finding ways to make the legislation more user friendly, without at the same time losing any of the important protections that have been introduced in recent years and in the amendments today.
	On the first point, I can confirm that protection of revenue is being put in place without affecting normal transactions in any way. We have been careful to ensure that standard repo contracts will not be affected. We are talking about a particularly contrived form of three-party repo—not the sort of transactions that one stumbles into inadvertently. They exist only where taxpayers are attempting to avoid paying tax by using artificial or contrived arrangements. Standard commercial or two-party repos will not be inadvertently affected by the changes.
	The second question was about agency cases. I can confirm that they will not be caught by the changes, as we looked into that particular problem.
	On the third question about novations, I can confirm that our understanding is that they will not be caught in that way. Following the special commissioner's decision, we decided to act quickly. We do not want to open up a wider problem. As a result of the commissioner's decision, the right thing to do was to act in a speedy manner and hopefully in a well thought out manner. I can assure the hon. Gentleman on all of his three points. More generally, because this is a complex area, we will keep it under review and if we can take further action in future Finance Bills to bring greater simplicity while at the same time keeping proper revenue protections in place, we shall certainly do so. For now, I urge hon. Members to support the amendments, which are necessary to protect the taxpayer from the potential loss of hundreds of millions of pounds. They will also help to ensure that the vast majority of people who go about their proper business in the financial markets will not be affected by the problem.
	 Amendment agreed to.
	 Amendments made: No. 16, in page 185, line 8, at end insert—
	'Multiple holders of securities subject to sale and repurchase agreement: no relief for deemed manufactured payments
	3A (1) Section 737A of ICTA (sale and repurchase of securities: deemed manufactured payments) is amended as follows.
	(2) In subsection (5) (application of Schedule 23A and dividend manufacturing regulations), after "apply" insert ", subject to subsection (5A) below,".
	(3) After that subsection insert—
	"(5A) If the relevant person is not the person to whom the transferor agreed to sell the securities, the relevant person is not entitled, by virtue of anything in Schedule 23A or any provision of dividend manufacturing regulations, or otherwise—
	(a) to any deduction in computing profits or gains for the purposes of income tax or corporation tax, or
	(b) to any deduction against total income or total profits,
	by virtue of subsection (5) above.
	Where the relevant person is a company, an amount may not be surrendered by way of group relief if a deduction in respect of it is prohibited by this subsection.".
	(4) In subsection (6) (interpretation), for—
	(a) "subsection (5) above", and
	(b) "that subsection",
	substitute "this section".
	(5) The amendments made by this paragraph have effect in relation to securities if—
	(a) the agreement to sell them was made on or after 27th June 2006, or
	(b) a person other than the person to whom the transferor agreed to sell them became the relevant person in consequence of any other agreement made on or after that date.'.
	No. 100, in page 185, line, at end insert—
	'Structured finance arrangements: factoring of income receipts etc
	3B (1) After section 774 of ICTA (transactions between dealing company and associated company) insert—
	 "Factoring of income receipts etc
	774A Meaning of "structured finance arrangement" for purposes of s.774B
	(1) For the purposes of section 774B an arrangement is a structured finance arrangement in relation to a person ("the borrower") if the following condition is met in relation to the borrower.
	(2) The condition is that—
	(a) under the arrangement the borrower receives from another person ("the lender") any money or other asset ("the advance") in any period,
	(b) in accordance with generally accepted accounting practice the accounts of the borrower for that period record a financial liability in respect of the advance,
	(c) the borrower, or a person connected with the borrower, makes a disposal of an asset ("the security") under the arrangement to or for the benefit of the lender or a person connected with the lender,
	(d) the lender, or a person connected with the lender, is entitled under the arrangement to payments in respect of the security, and
	(e) in accordance with generally accepted accounting practice those payments reduce the amount of the financial liability in respect of the advance recorded in the accounts of the borrower.
	(3) For the purposes of this section, in any case where the borrower is a partnership, references to the accounts of the borrower include the accounts of any member of the partnership.
	(4) For the purposes of this section and section 774B—
	(a) references to a person connected with the borrower do not include the lender, and
	(b) references to a person connected with the lender do not include the borrower.
	774B Disregard of intended effects of arrangement involving disposals of assets
	(1) If—
	(a) an arrangement is a structured finance arrangement in relation to a person ("the borrower"), and
	(b) the arrangement would (disregarding this section) have had the relevant effect (see subsections (2) and (3)),
	the arrangement is not to have that effect.
	(2) If the borrower is a person other than a partnership, the relevant effect is that—
	(a) an amount of income on which the borrower, or a person connected with the borrower, would otherwise have been charged to tax is not so charged,
	(b) an amount which would otherwise have been brought into account in calculating for tax purposes any income of the borrower, or of a person connected with the borrower, is not so brought into account, or
	(c) the borrower, or a person connected with the borrower, becomes entitled to an income deduction.
	(3) If the borrower is a partnership, the relevant effect is that—
	(a) an amount of income on which a member of the partnership would otherwise have been charged to tax is not so charged,
	(b) an amount which would otherwise have been brought into account in calculating for tax purposes any income of a member of the partnership is not so brought into account, or
	(c) a member of the partnership becomes entitled to an income deduction.
	(4) If—
	(a) a person in relation to whom the structured finance arrangement would otherwise have had the relevant effect is a person within the charge to income tax, and
	(b) in accordance with generally accepted accounting practice the accounts of the person record an amount as a finance charge in respect of the advance,
	that person may treat the amount for income tax purposes as interest payable on a loan.
	(5) If a person in relation to whom the structured finance arrangement would otherwise have had the relevant effect is a company within the charge to corporation tax—
	(a) the advance is to be treated, in relation to the company, for the purposes of Chapter 2 of Part 4 of the Finance Act 1996 as a money debt owed by the company,
	(b) the arrangement is to be treated, in relation to the company, for the purposes of that Chapter as a loan relationship of the company (as a debtor relationship), and
	(c) any amount which, in accordance with generally accepted accounting practice, is recorded in the accounts of the company as a finance charge in respect of the advance is to be treated as interest payable under that relationship.
	(6) For the purposes of this section, in any case where the borrower is a partnership,—
	(a) references to accounts include the accounts of the partnership, and
	(b) any deemed interest is treated as payable by the partnership (whether or not the finance charge is recorded in the accounts of the partnership).
	(7) For the purpose of determining when any deemed interest in respect of the advance is paid—
	(a) the payments mentioned in section 774A(2)(d) are treated as consisting of amounts for repaying the advance and amounts ("the interest elements") in respect of interest on the advance, and
	(b) the interest elements of those payments are treated as paid when those payments are paid,
	and the deemed interest in respect of the advance is treated as paid at the times when the interest elements are treated as paid.
	(8) In this section "deemed interest" means any amount which is treated as interest as a result of subsection (4) or (5).
	(9) This section is subject to the exceptions contained in section 774E.
	774C Meaning of "structured finance arrangement" for purposes of s.774D
	(1) For the purposes of section 774D an arrangement is a structured finance arrangement in relation to a partnership ("the borrower partnership") if condition A or B is met in relation to the borrower partnership.
	(2) Condition A is that—
	(a) a person ("the transferor partner") disposes of an asset ("the security") under the arrangement to the borrower partnership,
	(b) the transferor partner is a member of the borrower partnership immediately after the disposal (whether or not a member immediately before the disposal),
	(c) under the arrangement the borrower partnership receives from another person ("the lender") any money or other asset ("the advance") in any period,
	(d) in accordance with generally accepted accounting practice the accounts of the borrower partnership for that period record a financial liability in respect of the advance,
	(e) there is a relevant change in relation to the membership of the borrower partnership involving the lender or a person connected with the lender (see subsection (6)),
	(f) under the arrangement the share of the lender or person connected with the lender in the profits of the borrower partnership is determined by reference (wholly or partly) to payments in respect of the security, and
	(g) in accordance with generally accepted accounting practice those payments reduce the amount of the financial liability in respect of the advance recorded in the accounts of the borrower partnership.
	(3) For the purposes of condition A, references to the accounts of the borrower partnership include the accounts of the transferor partner.
	(4) Condition B is that—
	(a) the borrower partnership holds an asset ("the security") as a partnership asset at any time before the arrangement is made,
	(b) under the arrangement the borrower partnership receives from another person ("the lender") any money or other asset ("the advance") in any period,
	(c) in accordance with generally accepted accounting practice the accounts of the borrower partnership for that period record a financial liability in respect of the advance,
	(d) there is a relevant change in relation to the membership of the borrower partnership involving the lender or a person connected with the lender,
	(e) under the arrangement the share of the lender or person connected with the lender in the profits of the borrower partnership is determined by reference (wholly or partly) to payments in respect of the security, and
	(f) in accordance with generally accepted accounting practice those payments reduce the amount of the financial liability in respect of the advance recorded in the accounts of the borrower partnership.
	(5) For the purposes of condition B, references to the accounts of the borrower partnership include the accounts of any person who is a member of the partnership immediately before the arrangement is made.
	(6) For the purposes of this section and section 774D there is a relevant change in relation to the membership of the borrower partnership involving the lender or a person connected with the lender if directly or indirectly in consequence of, or otherwise in connection with, the arrangement—
	(a) the lender, or a person connected with the lender, becomes a member of the borrower partnership at any time, or
	(b) there is at any time a change in the share of a member of the borrower partnership in the profits of the borrower partnership in a case where that member is the lender or a person connected with the lender.
	(7) For the purposes of subsection (6)(b) the reference to a person connected with the lender includes a person who at any time becomes connected with the lender directly or indirectly in consequence of, or otherwise in connection with, the arrangement.
	774D Disregard of intended effects of arrangement involving change in relation to a partnership
	(1) This section applies if—
	(a) an arrangement is a structured finance arrangement in relation to a partnership ("the borrower partnership"), and
	(b) any relevant change in relation to the membership of the borrower partnership involving the lender or a person connected with the lender would (disregarding this section) have had the following effect.
	(2) The effect is that—
	(a) an amount of income on which a relevant member of the borrower partnership would otherwise have been charged to tax is not so charged,
	(b) an amount which would otherwise have been brought into account in calculating for tax purposes any income of a relevant member of the borrower partnership is not so brought into account, or
	(c) a relevant member of the borrower partnership becomes entitled to an income deduction.
	(3) In this section "relevant member of the borrower partnership" means—
	(a) in any case where condition A in section 774C is met in relation to the arrangement, the transferor partner, and
	(b) in any case where condition B in that section is met in relation to the arrangement, any person other than the lender who is a member of the borrower partnership immediately before the time at which the relevant change in relation to the membership of the borrower partnership involving the lender or a person connected with the lender occurs.
	(4) Part 9 of ITTOIA 2005 and section 114 above are to have effect in relation to any relevant member of the borrower partnership as if the relevant change in relation to the membership of the borrower partnership involving the lender or a person connected with the lender had not occurred.
	Accordingly, the structured finance arrangement is not to have the effect mentioned in subsection (2).
	(5) The following provisions of this section confer relief from tax the availability of which depends on which of the conditions in section 774C is met in relation to the arrangement.
	(6) In any case where condition A in section 774C is met, if—
	(a) the transferor partner is a person within the charge to income tax, and
	(b) in accordance with generally accepted accounting practice the accounts of the borrower partnership record an amount as a finance charge in respect of the advance,
	the transferor partner may treat the amount for income tax purposes as interest payable by the transferor partner on a loan.
	(7) In any case where condition A in that section is met, if the transferor partner is a company within the charge to corporation tax—
	(a) the advance is to be treated, in relation to the company, for the purposes of paragraph 19 of Schedule 9 to the Finance Act 1996 (and the other provisions of Chapter 2 of Part 4 of that Act) as a money debt owed by the borrower partnership,
	(b) the arrangement is to be treated, in relation to the company, as a transaction for the lending of money from which that debt is treated as arising for those purposes, and
	(c) any amount which, in accordance with generally accepted accounting practice, is recorded in the accounts of the borrower partnership as a finance charge in respect of the advance is to be treated as interest payable by the company under that transaction.
	(8) For the purposes of subsections (6) and (7), references to the accounts of the borrower partnership include the accounts of the transferor partner.
	(9) In any case where condition B in section 774C is met, if—
	(a) a relevant member of the borrower partnership is a person within the charge to income tax, and
	(b) in accordance with generally accepted accounting practice the accounts of the borrower partnership record an amount as a finance charge in respect of the advance,
	the relevant partner may treat the amount for income tax purposes as interest payable by the borrower partnership on a loan.
	(10) In any case where condition B in that section is met, if a relevant member of the borrower partnership is a company within the charge to corporation tax—
	(a) the advance is to be treated, in relation to the company, for the purposes of paragraph 19 of Schedule 9 to the Finance Act 1996 (and the other provisions of Chapter 2 of Part 4 of that Act) as a money debt owed by that partnership,
	(b) the arrangement is to be treated, in relation to the company, as a transaction for the lending of money from which that debt is treated as arising for those purposes, and
	(c) any amount which, in accordance with generally accepted accounting practice, is recorded in the accounts of the borrower partnership as a finance charge in respect of the advance is to be treated as interest payable by the borrower partnership under that transaction.
	(11) For the purposes of subsections (9) and (10), references to the accounts of the borrower partnership include the accounts of any relevant member of the borrower partnership.
	(12) For the purpose of determining when any deemed interest in respect of the advance is paid—
	(a) the payments mentioned in section 774C(2)(f) or (4)(e) are treated as consisting of amounts for repaying the advance and amounts ("the interest elements") in respect of interest on the advance, and
	(b) the interest elements of those payments are treated as paid when those payments are paid,
	and the deemed interest in respect of the advance is treated as paid at the times when the interest elements are treated as paid.
	(13) In this section "deemed interest" means any amount which is treated as interest as a result of any of subsections (6) to (10).
	(14) This section is subject to the exceptions contained in section 774E.
	774E Sections 774B and 774D: exceptions
	(1) Section 774B or 774D does not apply if the whole of the advance under the structured finance arrangement—
	(a) is charged to tax on a relevant person (see subsection (7)) as an amount of income,
	(b) is brought into account in calculating for tax purposes any income of a relevant person, or
	(c) is brought into account for the purposes of any provision of the Capital Allowances Act as a disposal receipt, or proceeds from a balancing event or disposal event, of a relevant person.
	For the purposes of this subsection the effect of section 785A (rent factoring of leases of plant or machinery) is to be disregarded.
	(2) Subsection (1)(c) is not to be taken as met in any case where—
	(a) the receipt or proceeds gives rise to a balancing charge, and
	(b) the amount of the balancing charge is limited by any provision of the Capital Allowances Act.
	(3) Section 774B or 774D does not apply if, at all times, the whole of the advance under the structured finance arrangement—
	(a) is a debtor relationship of a relevant person for the purposes of Chapter 2 of Part 4 of the Finance Act 1996 (loan relationships), or
	(b) would be a debtor relationship of a relevant person for those purposes if that person were a company within the charge to corporation tax.
	For the purposes of this subsection references to a debtor relationship do not include a relationship to which section 100 of the Finance Act 1996 (money debts etc not arising from the lending of money) applies.
	(4) Section 774B or 774D does not apply in so far as the structured finance arrangement is an arrangement in relation to which—
	(a) section 263A of the 1992 Act (agreements for sale and repurchase of securities) applies,
	(b) paragraph 15 of Schedule 9 to the Finance Act 1996 (repo transactions and stock-lending) applies, or
	(c) Chapter 5 of Part 2 of the Finance Act 2005 (alternative finance arrangements) has effect.
	(5) Section 774B or 774D does not apply in so far as—
	(a) the security under the structured finance arrangement is plant or machinery which is the subject of a sale and finance leaseback, or
	(b) the structured finance arrangement is an arrangement in relation to which sections 228B to 228D of the Capital Allowances Act apply with the modifications contained in section 228F of that Act (lease and finance leaseback).
	(6) For the purposes of subsection (5)(a), whether plant or machinery is the subject of a sale and finance leaseback is determined in accordance with section 221 of the Capital Allowances Act.
	But, in applying that section, it is to be assumed that the words "and which are not a long funding lease in the case of the lessor" were omitted from section 219(1)(b) of that Act (meaning of "finance lease").
	(7) For the purposes of this section a "relevant person" means—
	(a) if section 774B applies, a person in relation to whom the structured finance arrangement would (but for that section) otherwise have had the relevant effect (within the meaning of that section), and
	(b) if section 774D applies, a relevant member of the borrower partnership (within the meaning of that section).
	774F Sections 774B and 774D: power to provide further exceptions
	(1) The Treasury may make regulations prescribing other circumstances in which section 774B or 774D is not to apply in relation to a structured finance arrangement.
	(2) Any regulations under subsection (1) may make provision amending section 774E.
	(3) The power to make regulations under subsection (1) includes—
	(a) power to make provision having effect in relation to times before the making of the regulations (but not times earlier than 6th June 2006),
	(b) power to make different provision for different cases or different purposes, and
	(c) power to make incidental, supplemental, consequential or transitional provision and savings.
	774G Sections 774A to 774D: minor definitions etc
	(1) For the purposes of sections 774A to 774D "arrangement" includes any agreement or understanding (whether or not legally enforceable).
	(2) For the purposes of sections 774A to 774D "income deduction" means—
	(a) a deduction in calculating any income for tax purposes, or
	(b) a deduction against total income or total profits.
	(3) For the purposes of sections 774A to 774D—
	(a) references to a person's receiving any asset include the person's obtaining directly or indirectly the value of any asset or otherwise deriving directly or indirectly any benefit from it,
	(b) references to a disposal of an asset include anything which constitutes a disposal of the asset for the purposes of the 1992 Act,
	(c) references to payments in respect of any asset include obtaining directly or indirectly the value of any asset or otherwise deriving directly or indirectly any benefit from it.
	(4) For the purposes of sections 774A to 774D, section 839 (connected persons) applies.
	(5) For the purposes of sections 774A to 774D references to the accounts of any person who is a company include the consolidated group accounts of a group of companies of which it is a member.
	(6) If any person does not draw up accounts in accordance with generally accepted accounting practice, sections 774A to 774D apply as if the accounts had been drawn up by the person in accordance with that practice.
	(7) Sections 277 to 281 of ITTOIA 2005 and section 34 above (lease premiums) are not to apply in relation to a premium paid in respect of a grant of a lease where the grant constitutes a disposal of an asset for the purposes of section 774A(2)(c) or 774C(2)(a).".
	(2) The amendment made by this paragraph has effect in relation to any arrangements whenever made (but see sub-paragraphs (3) and (4)).
	(3) In relation to arrangements made before 6th June 2006, amounts are, as a result of the amendment made by this paragraph,—
	(a) to be charged to tax, or
	(b) to be brought into account in calculating any income for tax purposes or deducted from any income for tax purposes,
	only if the amounts arise on or after that date.
	(4) The amendment made by this paragraph has no effect in relation to any arrangement made before that date in so far as section 43B or 43D of ICTA (rent factoring) applies to it.
	(5) In any case where, in relation to arrangements made before that date, a person is treated, as a result of the amendment made by this paragraph, as being a party to any loan relationship—
	(a) a period of account is to be treated for the purposes of Chapter 2 of Part 4 of FA 1996 as beginning on that date, and
	(b) the loan relationship is to be treated for those purposes as being entered into by the person for a consideration equal to the notional carrying value of the liability representing the relationship.
	(6) For this purpose, the notional carrying value is the amount that would have been the carrying value of the liability in the accounts of the person if a period of account had ended immediately before that date.
	(7) "Carrying value" has the same meaning here as it has for the purposes of paragraph 19A of Schedule 9 to FA 1996.
	Rent factoring of leases of plant or machinery
	3C (1) Section 785A of ICTA (rent factoring of leases of plant or machinery) is amended as follows.
	(2) After subsection (5) (provision about partnerships with legal personality) insert—
	"(5A) This section does not apply in so far as section 774B or 774D (structured finance arrangements) applies in relation to the arrangements mentioned in paragraph (c) of subsection (1) above as a result of the transfer mentioned in that paragraph.".
	Transactions associated with loans or credit
	3D (1) Section 786 of ICTA (transactions associated with loans or credit) is amended as follows.
	(2) After subsection (5) (transaction under which a person assigns, surrenders etc income arising from property) insert—
	"(5ZA) But subsection (5) above does not apply if the person mentioned in that subsection is, as a result of section 774B or 774D (structured finance arrangements), chargeable to tax on the amount of income assigned, surrendered, waived or forgone.".
	Structured finance arrangements: chargeable gains treatment of acquisitions and disposals
	3E (1) After section 263D of TCGA 1992 (gains accruing to persons paying manufactured dividends) insert—
	"263E Structured finance arrangements
	(1) This section applies if—
	(a) section 774B of the Taxes Act (disregard of intended effects of arrangement involving disposals of assets) applies in relation to a structured finance arrangement,
	(b) the borrower or a person connected with the borrower makes a disposal of any security at any time under the arrangement to or for the benefit of the lender or a person connected with the lender, and
	(c) condition A or B is met.
	(2) Condition A is that the person making the disposal subsequently acquires under the arrangement the asset disposed of by that disposal.
	(3) Condition B is that—
	(a) the asset disposed of by that disposal subsequently ceases to exist at any time, and
	(b) that asset was held by the lender, or a person connected with the lender, from the time of the disposal until that time.
	(4) The disposal of the security by the borrower or a person connected with the borrower is to be disregarded for the purposes of this Act.
	(5) Any subsequent acquisition by the person making the disposal of the asset disposed of by that disposal is to be disregarded for the purposes of this Act.
	(6) In this section—
	"the borrower", in relation to a structured finance arrangement, means the person who is the borrower under the arrangement for the purposes of section 774A of the Taxes Act,
	"the lender", in relation to a structured finance arrangement, means the person who is the lender under the arrangement for the purposes of that section,
	"security" means any such asset as is mentioned in subsection (2)(c) and (d) of that section.
	(7) For the purposes of this section—
	(a) references to a person connected with the borrower do not include the lender, and
	(b) references to a person connected with the lender do not include the borrower.".
	(2) The amendment made by this paragraph has effect in relation to disposals made on or after 6th June 2006.
	(3) The amendment made by this paragraph also has effect in relation to any disposal made by a person before that date if the person makes a claim to that effect under this sub-paragraph.'.
	No. 17, in page 192, line 19, at end insert—
	'Loan relationships: repo and stock-lending arrangements
	13A (1) In Schedule 9 to FA 1996 (loan relationships: special computational provisions), paragraph 15 (disposal or acquisition made in pursuance of repo and stock-lending arrangements not to be related transaction) is amended as follows.
	(2) In sub-paragraph (2)(b) (transfer to original transferor ("A") giving effect to entitlement or requirement to rights on re-transfer etc.), after "to A" insert "by B".
	(3) The amendment made by this paragraph has effect in relation to any transfer to A (within the meaning of paragraph (a) of sub-paragraph (3) of paragraph 15) under arrangements—
	(a) consisting in or involving an agreement made on or after 27th June 2006 for the transfer of rights by A to B (within the meaning of that paragraph), or
	(b) involving an agreement made on or after that date providing for a transfer giving effect to the entitlement or requirement described in paragraph (b) of that sub-paragraph otherwise than by B.'.— [Mr. Watts.]

Amendments made: No. 21, in page 203, line 30, leave out from 'the' to 'purpose' in line 31 and insert 'main'.
	No. 24, in page 209, line 7, at end insert—
	'(6) A plant or machinery lease is not a funding lease in the case of the lessor if—
	(a) before 1st April 2006, the plant or machinery had, for a period or periods totalling at least 10 years, been the subject of one or more leases, and
	(b) the lessor under the plant or machinery lease was also lessor of the plant or machinery on the last day before 1st April 2006 on which the plant or machinery was the subject of a lease.'.
	No. 25, in page 212, line 43, at end insert '(but see also subsection (4A))'.
	No. 26, in page 213, line 23, at end insert—
	'(4A) A lease is not excluded by virtue of subsection (2) if—
	(a) the inception of the lease is before 28th June 2006, and
	(b) by virtue only of section 70J(6), the lease is not a funding lease in the case of the lessor.'.
	No. 22, in page 214, line 32, leave out from 'is' to 'that' in line 33.
	No. 23, in page 216, line 26, leave out from 'if' to third 'the' in line 27.— [Mr. Watts.]

Rob Marris: It is part of the process of parliamentary scrutiny, in which we are currently engaged, to try to tease some of that information out of the Government. It might have been preferable, if the figures were available, for them to be in the Red Book. I suspect—although I do not know—that part of the Government's response will be to say that we are considering a recirculation exercise for corporation tax liabilities, allowable tax losses and so on. That is a strong suspicion, based on what my right hon. Friend the Paymaster General said when we had a brief debate on the matter in the Standing Committee, on which I served. I would like, as I said, to tease out some figures, and I am sure that the hon. Gentleman and others would also like to do so. Leaving aside all the environmental issues about nuclear power, which it is not appropriate for us to discuss today—I am sure that you would rule me out of order if I tried to do so, Mr. Deputy Speaker—there are clear financial questions to be asked about the nuclear industry, both in the United Kingdom and around the world.
	As I was saying, the industry is subsidised around the world. It is a private industry in the United States, where it is heavily subsidised. No nuclear reactor has been built or commissioned in the USA, that bastion of free enterprise, for at least 25 years because the figures do not stand up. In Finland, which has been widely quoted recently because it is opening up nuclear power—quite controversially, perhaps, for a Scandinavian country—there are direct and very indirect subsidies for the power stations that are being built.
	I want to try to find out whether the Government are subsidising the nuclear industry in this country more than is commonly known, because of course there is a debate about whether there should be more nuclear power stations built in the United Kingdom. It is interesting to note, as I have teased out in the House before by parliamentary questions and in the Trade and Industry Committee on which I serve, that any company could now apply to build a new nuclear power station in the United Kingdom.

Dawn Primarolo: The clauses deal with the history of nuclear power stations and with decommissioning today; they do not go forward in any way. I will cover that in my remarks. We are talking about responsibilities for decommissioning now power stations that are already in operation and need to be decommissioned.

Rob Marris: As I understand it, the transitional arrangements came in because the European Commission started examining whether there was or is unauthorised state aid in the UK for the nuclear power industry, part of which has been privatised and more of which will be privatised.
	Whatever the proponents of the nuclear industry say, we have what I would regard as a dinosaur industry that is using technology, even with the pebble-bed reactors and so on that it is talking about—technology that has been around in Germany since, I think, 1958, but which is supposed to be the new generation of nuclear power—that is about 50 years old. The technology has never been operated anywhere without state subsidy, directly or indirectly. The proponents of a new generation of nuclear power stations are looking forward rather than backwards, which the clauses do, to a situation where there will not be state subsidies. I am a little cynical about that. I have heard it all before. Throughout my adult life I have heard about how there would not be state subsidies, and that we would have electricity too cheap to meter, for example. That never worked out.
	We are talking about old technology. It is about 50 years old, as I have said. That is the basic design, however much we talk about advanced gas water and all that, heavy water and can-do reactors, for example. It is, as I have said, old technology. It works in as much as it produces electricity, but it does not work in that it is not economic. Even with today's high energy prices, there are serious questions to be asked about whether the nuclear power that we have, let alone that that we may have in future, is economic, given the direct subsidies that we have for the existing nuclear fleet of power stations and the possible subsidies, whether on insurance or guaranteed purchase of electricity, that we may have for future nuclear power stations.
	As for the environment, we would be much better spending the money on energy conservation and renewables than on a new generation of nuclear power stations, but that is not a debate for today. The debate is whether clauses 99 and 100 are directly or indirectly a hidden subsidy for the nuclear industry that already exists. I hope that today, or perhaps by writing to me, my right hon. Friend the Paymaster General will indicate what the fiscal effects of the two clauses will be on the Government's net balance sheet. The explanatory notes talk about avoiding incurring corporation taxes and a company acquiring taxable losses.
	I wanted to get some idea for the entire industry, in as much as it is state owned in the UK—that is pending sell-off of larger chunks of it than have already been sold off—whether corporation tax charges that might be avoided by means of clauses 99 and 100 will be greater than the acquired taxable losses that the clauses facilitate in a sort of wiping-out exercise. My right hon. Friend the Paymaster General, perhaps to use my words rather than hers in Standing Committee, referred to these measures being, in a sense, a recirculation of Government money.
	There is the fiscal net effect—that is weighing the avoided corporation tax and the avoided tax right-offs through acquired losses and determining whether that is even or whether there is an imbalance. If there be an imbalance, what is it? That will enable us to have some idea at this stage of whether there be yet another subsidy to an industry that is financially, let alone environmentally, a failed industry, or whether this is an accounting exercise that results in even stevens at the end. I hope that my right hon. Friend the Paymaster General will elucidate. If not—I realise that there may be complex figures—I should like to receive a response in writing at a later date.

Paul Goodman: I am surprised that the Minister did not ask me that in Committee. However, the line of inquiry that I am about to pursue is the same as the one that I pursued in Committee. Strictly speaking, it is not predicated on the Energy Act 2004 but on the question of whether a private company would enjoy the tax advantages enjoyed by public companies.
	As I said, I am not entirely satisfied with the answers that I received from the Paymaster General in Committee—that may explain why the right hon. Lady was so anxious to intervene on me—and neither, it appears, is the hon. Member for Wolverhampton, South-West.

Paul Goodman: Indeed.
	Clause 99 aims to preserve the intended effect of section 29 of the Energy Act 2004, to which the Paymaster General referred. According to the explanatory notes on the clause, which the hon. Member for Wolverhampton, South-West will have read, section 29 is intended to ensure
	"that accounting entries made by certain publicly owned companies in the British Nuclear Fuels Group, arising from the recognition of the Nuclear Decommissioning Authority taking responsibility for nuclear decommissioning and cleaning-up, should not be brought into account for corporation tax purposes...Section 29...operates on the basis that the assumption of financial responsibility by the NDA would be recognised when certain events of the reorganisation occurred...The reorganisation took place on the 1 April 2005 however, between the Energy Act 2004 and the reorganisation, the European Commission"—
	as the hon. Gentleman said—
	"began a state aid investigation into the NDA. This caused transitional arrangements to be put in place governing the financial liability assumed by the NDA. As a result of these arrangements the accounting recognition by the site licensee companies of the assumption of financial responsibility by the NDA may be deferred and section 29 would not apply to the later accounting entries."
	I assume that that means that the tax advantage would not be enjoyed.
	As the hon. Member for Wolverhampton, South-West implied, since the Budget, it has been announced that one company in the BNFL group—British Nuclear Group, which is British Nuclear Fuels Ltd's specialist site management and nuclear clean-up business—is to be transferred from the public to the private sector. As I said in Committee, that sounds reasonable in principle and the Opposition are obviously the last group of people who will look unsympathetically on the case for transferring services from the public to the private sector. However, it is important that any tax arrangements that result from such a transfer are transparent, and that the interests of taxpayers are protected.
	I asked the Paymaster General on 6 June in Committee to correct me if I was mistaken in asserting that an exemption from corporation tax that applied to a public body is now to be applied to a private body. The right hon. Lady said at column 451:
	"Although I recognise that the BNFL group"—
	I stress the next few words—
	"includes the private sector, tax and liabilities follow the normal tax provisions."
	So it seems on the face of it that an exemption from corporation tax that applied to a public body is now to be applied to a private body.
	I also asked whether the exemption was intended to make the sale more attractive. The hon. Member for Wolverhampton, South-West used the phrase "fatten up", which is a more vivid way of putting it. My reading of the record of 6 June is that the Paymaster General did not definitively deny that claim. I would be grateful if she took the opportunity to do so now.
	I asked for precedents. The right hon. Lady cited the Government taking over British Energy plc's liability for decommissioning and certain other liabilities in 2005. She said at column 451:
	"The hon. Member for Wycombe asked me . . . whether there are examples of a similar arrangement being made to prevent the circular movement of Government finances. There are such examples. I do not have them to hand, but I am happy to let him know what they are."—[ Official Report, Standing Committee B, 6 June 2006; c. 451.]
	Two points follow. First, it has been suggested to me that the British Energy example is not particularly apposite. British Energy, it was argued, was effectively insolvent and the Government decided to rescue it, rather than have a major generator go bust. In other words, the British Energy example describes an old fashioned rescue operation, so reducing the tax burden of what the Government intend to be a newly privatised business, BNG, is surely not comparable. Secondly, I have not yet received from the Paymaster General, although I hope to do so in due course, the other examples to which she alluded.
	I want to try to get to the heart of what the Paymaster General meant on 6 June by speaking of the purpose of clauses 99 and 100 being to prevent Government money, as she put it at column 452, "moving in circles." On the evidence of that debate, it seems to me that the effect of the clause, if not the purpose, might no less accurately be described as reducing the tax burden of what will be a newly privatised business. If that is the case, a further question arises.
	The Nuclear Decommissioning Authority presumably employs private sector contractors other than BNG for one purpose or another. Do they also have arrangements in place that effectively reduce their tax burden? If not—and I suspect the answer is not—there is a bit of mystery hanging over the clause. I hope the right hon. Lady will take the opportunity to clear it up.

Julia Goldsworthy: As my hon. Friend the Member for Cambridge (David Howarth) pointed out, there was nothing about these matters in the Budget statement, the press notices or the Red Book, and there was no information available at the time that the Budget resolutions were debated and passed in the House. The Paymaster General made a specific reference to the Lib Dem contribution to the relevant section of the Energy Act 2004, which was not debated in Committee, as I found when I looked back at  Hansard for that time. As has been observed, at that time all the organisations that would have been affected by these clauses would have been in the public sector, so effectively it would have been public money swilling around and the issue would not have been seen to be so important.
	The key issue is whether there is state aid and, if so, to what extent. While BNFL group is a publicly owned company, it is free from corporation tax, but when it becomes private it will be liable for corporation tax. It is not clear what happens in the transitional period. Is there a hidden subsidy and will it continue through the transitional arrangements?
	Finally, on the closing comments by the hon. Member for Wolverhampton, South-West (Rob Marris), what are the net fiscal effects on the Exchequer? As well as writing to the hon. Member for Wolverhampton, South-West, will the Paymaster General undertake to place that information in the Library, because I am sure that many hon. Members will be interested?

FINANCE (NO. 2) BILL

Dawn Primarolo: Thank you, Mr. Deputy Speaker.
	Sections 29 and 30 of the Energy Act 2004 were intended to prevent BNFL site licensee companies from incurring corporation tax charges as a consequence of accounting entries made to reflect the assumption of financial responsibilities for the decommissioning and cleaning up of certain civil nuclear sites by the NDA. As I said in Committee, the House agreed the provision to prevent a large amount of Government money moving in circles. To be precise, it was intended to make sure that in transfers from public bodies, one public body does not have a tax-deductible loss, while the other public body receiving the assets has a gain that is also not taxable.
	In Committee, my hon. Friend the Member for Wolverhampton, South-West (Rob Marris) mentioned discussions on state aid issues subsequent to the 2004 Act. There was a mismatch between what was agreed by this House in the 2004 Act and subsequent clarifications on state aid. What is proposed now—it was included in the state aid notification in respect of the NDA—is not considered as state aid, because the effect of the exemption is tax neutral with respect to the Government, which is why I have mentioned the circular effect between publicly owned bodies. The provision allows accounting entries without the problem of money coming in with one hand and going out with the other.
	My hon. Friend the Member for Wolverhampton, South-West has asked about the cost of decommissioning on the historic provisions of nuclear civil sites. That has nothing to do with the future, should there be one, because the matter is completely outside the arrangements. Clauses 99 and 100 were included in the Finance Bill because it was the next available parliamentary vehicle to correct the provisions in the 2004 Act, and I assure my hon. Friend that the clauses were not about preparing for a transfer to the private sector.

Dawn Primarolo: I am talking about the creation of the Nuclear Decommissioning Authority and the movement from its predecessor authority, which is all that these provisions cover. The position as regards state aid confirms that it is tax-neutral; otherwise, it would not get state aid. These provisions concern the arrangements in the Energy Act for transferring from one public body to another. The accounting period for those public bodies would end as soon as they became private companies and moved beyond the scope of the provisions.
	My final point is not directly relevant to the clause but may help the House. Under the 2004 spending review, the Nuclear Decommissioning Authority received a budget of £2.2 billion for 2005-06. That is to be derived half from commercial activities and, over time, commercial income in recognising those costs. As I understand it, the proposals on tax neutrality within Government, having been agreed by this House in 2004, had to be amended following a mismatch with regard to timing. The Bill lines that up again to preserve the position. I can absolutely confirm to the House that there is no question of state aid subsidies, nor can there be given the clearance that we have sought.
	On that basis, I hope that my hon. Friend the Member for Wolverhampton, South-West, who follows these issues with great interest and in some detail, will not press his amendment. I feel that his questions are more relevantly directed to the future than to the past, whereas these clauses are directed to the past and to ensuring that we discharge our responsibilities on nuclear decommissioning.

Mark Francois: I rise to speak to our amendment No. 130, which seeks to allow real estate investment trusts—REITs—to list on the alternative investment market of the London stock exchange or its equivalent European Union markets. In debating this issue, we return to part 4 of the Bill, which deals with the regime to introduce REITs. I have said on several occasions that we welcome in principle the introduction of such a regime in the United Kingdom; indeed, this is an initiative that we have been advocating for quite some time.
	That being the case, we have sought to work constructively with the Government to ensure that the regime is in good order when it commences its operation as scheduled in January 2007. I hope that it is fair to say that we maintained that approach in Committee, where we pressed the Government on a variety of issues, including the qualifying conditions for REIT status and the penalties for breaking those conditions, and the definitions to be used in operating the regime. The Minister might also recall that we were of some assistance, at the end of a lengthy afternoon sitting, in deleting clause 143 from the Bill. I see from his reaction that he remembers that.
	However, there are still some weaknesses in the proposed REITs regime that I should like to address, both in relation to our amendment No. 130 and to amendments Nos. 60 and 61, which have been tabled by my right hon. Friend the Member for North-West Hampshire (Sir George Young). I shall begin, however, by referring to Government amendments Nos. 27, 28, 29 and 30.
	Government amendment No. 27 relates specifically to clause 107 of the Bill, which deals with the conditions necessary for a business to qualify as tax exempt under the REITs regime. Condition 3 of clause 107 is that owner-occupied properties should be excluded from tax-exempt status. In Committee, we discussed the operation of condition 3 in some detail—particularly in relation to car parks, as I recall. A related issue had arisen during the consultation process that preceded our Committee deliberations, which was the definition of "owner-occupied" as generally understood under international accounting standard 40—known as IAS 40 for short. That problem threatened to create unintended consequences for the REITs regime. The problem would be that if, in certain circumstances, an REIT company were to provide significant services to the occupier of one of its properties, the company might itself be deemed to be an owner occupier under the strictures of IAS 40, and therefore fall outside the REITs regime under condition 3 of clause 107.
	Government amendment No. 27 seeks to address that by ensuring that in such circumstances, where the tenant has exclusive occupation of the property, the accounting definition of "owner occupied" is effectively overridden, so that the REIT company is not deemed to have breached condition 3 of clause 107. The associated Government amendment No. 30 appears to be essentially a drafting amendment, which ensures that the revised application of clause 107 is extended to group companies via a corresponding change to the associated schedule 17. So far, so good.
	The British Property Federation welcomed the amendment with the following comment, which is germane:
	"We welcome this amendment, which addresses a concern raised by industry during the consultation. However, we are aware that there may be a number of different situations where the definition of owner occupied property inadvertently causes a property to be excluded from the tax exempt business. Government should be aware of this and have a strategy in place to listen to industry concerns and react quickly to those situations through producing appropriate guidance."
	That seems a not unreasonable request, given that this is an especially complex area. I hope that the Minister and his officials can liaise with the industry to try to address, as far as practically possible, any remaining anomalies in the subsequent guidance, in light of ever-changing commercial circumstances. At some point, the guidance might have to be updated to take account of changing market conditions. Perhaps the Economic Secretary will address that question when he sums up.
	Government amendments Nos. 28 and 29 relate to schedule 16 of the Bill. Schedule 16 defines various categories of business and income which are specifically excluded from the REITs regime. Those amendments relate to questions raised about the operation of the schedule in Committee and when we debated the related clause 111—the issue of potential double taxation of properties held on so-called trading account, and yet another issue relating to the definition of owner occupation, to reiterate the point about the complexity surrounding that term.
	In essence, those measures were originally proposed in the associated draft regulations, on which I spoke for the Opposition. In Committee, the Economic Secretary intimated that he would be likely to bring forward amendments on those subjects on Report, and therefore to include such elements in the Bill, which in principle we welcome. He has kept his word and we commend him for that. We still hesitate about the solution, however, in this instance of what one might call clarification by exclusion. Even though the Government's solution will now appear in the Bill, they still seek to achieve that clarification by extending the inclusion to encompass all so-called trading properties, which underlines how little this part of the Bill does for residential property, as that is a particular challenge for residential property companies. I shall refer to that topic again shortly, although I suspect that my right hon. Friend the Member for North-West Hampshire will also be keen to catch your eye on that, Mr. Deputy Speaker, when he speaks to his amendments.
	Our amendment No. 130 is designed to extend the qualifying conditions for a company applying for REIT status under clause 106, specifically by allowing REIT companies to list on the alternative investment market of the London stock exchange—AIM, as it is now more popularly known. When the matter was touched on in Committee of the whole House, Ministers pointed out that, under EU law, that would also entail reciprocal listing on other comparable EU exchanges. Our amendment specifically caters for that, so I hope that it will be more acceptable as a result.
	There are several good reasons why REITs should be able to list on AIM. First, property companies registered as REITs are likely to enjoy significant tax advantages over those usually smaller companies denied that status. It therefore seems probable that there could be considerable consolidation in the property market, as AIM-listed companies that cannot qualify for tax-exempt status are gradually taken over by companies on the full listed market that do enjoy those tax advantages. That is potentially unfair, and could cause the United Kingdom property market to be increasingly dominated by a relatively small number of very large REIT companies. That is presumably not what the Government intended when they introduced the regime.
	Secondly, AIM-listed companies themselves might come under pressure to convert to a full stock exchange listing before they are really ready for it, principally in order to be able to qualify for REIT status, thus potentially causing a distortion in the orderly evolution of the market sector. Why not expand the condition at least to cover AIM-listed companies that meet all the other conditions in the Bill? There are a number of them and we have already debated them at length, so I hope I need not repeat them now. That would facilitate greater diversity in the REITs market available to investors.
	I think the third point quite important. I am sure that, given his business experience in the United States, my hon. Friend the Member for Braintree (Mr. Newmark) will want to expand on it. US experience suggests that widening the listing base is a good way of helping the concept to take off. The  Financial Times estimates that more than $300 billion is now invested in US REITs, and notes that spreading the listing base was important to the generation of that significant investment. Our Government would presumably like to emulate that as well, at least on a comparable United Kingdom scale. We know that it worked well in the United States. Why should we not learn from that example? As the Americans have one of the oldest established REITs regimes in the world—I believe that it began in 1960—they have considerable experience in operating REITs, and they found widening the listing base to be a good way of helping the concept to grow. Why do we not learn from our American cousins in this instance?

Mark Francois: That is an important point. As we said in Committee, we believe that one of the weaknesses of the current regime is that it is already heavily skewed in favour of commercial property. Leaving this impediment in the Bill may make the position worse. I shall say more about that shortly, while—I hope—not entirely stealing the thunder of my right hon. Friend the Member for North-West Hampshire.
	The listing issue is a particular impediment for residential property companies that seek REIT status. In Committee, I made the general point that the REITs regime appeared to have been designed primarily with commercial property in mind, residential property having been included almost as an afterthought. I said at the time that I wanted to initiate a debate on that, and on what might be done to deal with it.
	That there appears to be a problem with residential REITs is illustrated by the fact that several major commercial property companies, including Land Securities and Hammerson, have already indicated that they have decided to convert to REIT status. As far as I am aware, no residential property company has yet made such a firm commitment.

Mark Francois: Yes. If a company is thinking of listing on the AIM market, it will bear several factors in mind, including the cost of that listing and compliance. If it is thinking of upgrading to the full London stock exchange, the cost of compliance and registering will also form part of its consideration. My point is that as the regime exists, it may encourage some AIM companies to go for a full listing when they otherwise would not be ready. They feel that they have no choice, because if they are going to remain in property, they need the tax exemptions to qualify as a REIT company. If they do not qualify and just sit on AIM, they may be vulnerable to takeover by fully listed companies that have that tax wrapper to enhance their power. My hon. Friend again makes an apposite point.
	We have established that there has been no definite announcement by any company to convert to residential REIT status. Moreover, residential property companies tend to be smaller, both by market capitalisation and the actual book value of their portfolio, than commercial property companies. While there are several residential property companies that might have little difficulty in obtaining REIT status on AIM—some 60 are registered on AIM—forcing them into a full listing before they are ready could be a serious impediment to them. The British Property Federation argued that point in a note on the subject:
	"The property industry in the UK believes the consequence of limiting REITs to listed companies will be to unnecessarily limit the development of REITs because it heightens the barrier for new entrants to the UK REIT regime and as a consequence makes it that much more difficult for new REIT companies to form. Clearly, this has consequences for those seeking to establish new investment vehicles in traditionally under-invested property markets, such as the residential private rented sector."
	Fifthly, AIM is specifically designed to help emerging companies that wish to be open to public investment, but would find it difficult to sustain themselves on a recognised stock exchange at an early stage in their development. The London Stock Exchange describes AIM on its website as
	"the most successful growth market in the world".
	It continues:
	"Since AIM opened in 1995"—
	under a Conservative Government, I remind the House—
	"more than 2,200 companies have been admitted and more than £24 billion has been raised collectively."
	As of May 2006, there were 1,528 companies, of which 1,266 were in the UK and 262 were international, listed on AIM. Those companies had a total market value of £74.2 billion and a turnover value of £28.6 billion, to May 2006. So AIM is a very successful market in its own right.
	Amendment No. 130 seeks therefore to open up the current clause 106 legislation to allow companies listed via AIM to convert to REIT status. That will enable the development of new or smaller companies in the REIT market, thus helping to ensure that REITs are a sustained, successful investment vehicle across the property market.
	Sixthly, and importantly, during the Committee of the whole House, the then Economic Secretary argued that an impediment to allowing REITs to list on AIM was that under EU law they would need similar listing opportunities on comparable EU exchanges. However, unlike our amendment at that stage, our amendment No. 130 specifically allows for that point. Moreover, the first condition of clause 106 is that to qualify for REIT status a company must be resident in the UK in any case, so even though a company could theoretically list on an alternative EU exchange rather than on AIM, given that it must be UK-resident to comply with the REITs regime generally, in most cases the most likely scenario would be for a UK listing, at least in the first instance. Common sense suggests that in the majority of cases a UK-resident company would probably register on AIM first, rather than going to one of the alternative EU markets. Even were that not the case, and the company registered on one of the alternative EU markets, why in principle need that be a showstopper? Will the Economic Secretary answer that question before we conclude the debate?

Julia Goldsworthy: I do not intend to rehearse all the arguments that we had on this issue on Second Reading and in Committee. However, let me state that the whole point of real estate investment trusts is that they offer a regulated low-risk way for individuals to invest in the property market. The hon. Member for Rayleigh (Mr. Francois) is right that early indications suggest that there might be a question about where the balance lies in terms of the development of REITs and what proportion of them will be commercial REITs as against residential REITs. At present the balance is heavily in favour of the commercial sector, but as the Economic Secretary pointed out, it seems that some residential companies are hesitantly setting out their stall and looking to develop in that way.
	Given the way in which the self-invested personal pension scheme was put forward and then withdrawn, it is important that we allow these regulations to go ahead as was suggested in the consultation with the industry, which was very constructive, and let them bed down. At that point, we can look at where the imbalances are, and at ways to overcome them. That is when we should reflect on whether the proposals in amendment No. 130 are required or appropriate. The Liberal Democrats are relaxed about this issue. We would rather see how the REITs regulations bed down over the first couple of years, and how the companies in question bed down in the London stock exchange, and then, if there is a problem, look to AIM.

Stewart Hosie: I wish to address my remarks to amendments Nos. 64 to 68. The substantive amendment is amendment No. 65; the others are consequential, renumbering subsections in clause 106.
	The Minister and others will know that I and my party are very supportive of the concept of real estate investment trusts. Like many, we believe that they offer a route into property investment for the vast majority of people, who do not have the means to purchase a second property outright, or for those who do have the means but who simply wish to avoid managing such properties themselves. We also believe that if REITs are local and highly focused residential trusts, they have the opportunity either to complement the existing local authority sector or housing association and private residential rented sector, or to provide additional rented properties in areas where there is little provision, or none at all.
	However, the legislation as it stands will force all REITs to be listed on the stock exchange. We believe that that requirement alone might prevent the creation of the smaller, local, highly focused residential trusts that we would like to be created, along with the inevitable larger commercial ones.
	As we know, the minimum entry level for a stock exchange listing is £750,000, plus another £750,000 for fundraising, plus 2 to 5 per cent. in commission, and advisory costs of some £250,000. Fundraising on the stock exchange can be for any amount. We also know that the typical value of a stock exchange-listed company is £100 million upwards. If one combines those costs with the other rules—that 75 per cent. of a REIT's commercial activity must come from rentals, and that 90 per cent. of the rental income must be returned in dividends to investors—there is a very real danger, to which the hon. Member for Rayleigh (Mr. Francois) alluded, that REITs will focus solely on high-end commercial and retail properties that already offer a guaranteed high rental income. It is also likely that, to cover the listing costs and to meet all the other rules and obligations, such trusts will purchase property rather than seek to develop it.
	Our view is that to encourage smaller, more focused residential trusts to deliver rented housing, the entry bar should be far lower than the stock exchange listing requirement in current legislation. For example, the minimum entry cost for introduction to the alternative investment market is about £300,000. Fundraising accounts for another £300,000, and there are similar commission levels of 2 to 5 per cent.; however, the ongoing advisory costs—some £50,000—are far less than the £250,000 figure.
	In AIM, companies tend to be in the £10 million to £150 million range, with fundraising costs in the region of £2 million £20 million—the kind of figure that a small, locally focused residential trust might seek to raise. Further down the range is the off-exchange market, with a minimum entry figure of £30,000, fundraising costs of about £100,000 and similar commission levels, but with ongoing advisory costs of some £10,000. Ofex caters for businesses up to the £20 million mark—not a tiny sum—whose fundraising costs are in the £300,000 to £4 million range. Of course, there is also the opportunity for any business or trust to be financed privately.
	So, given the other conditions applying to REITs—not least the residency qualification—there seems little logic in forcing a REIT to be quoted on the official list; indeed, in the light of the associated costs and the typical size of businesses on the list, there is almost a disincentive for local residential trusts to be created. Our amendments would eliminate that requirement from the Bill by deleting subsection (5) from clause 106, thereby removing the condition that a trust company's ordinary shares be listed on the stock exchange. The only argument previously posited in favour of full listing is that it would perhaps give confidence to investors and to those seeking to rent a property from such a trust. However, a given individual or business will take the decision to invest or rent after applying the correct degree of scrutiny and due diligence.
	Although a full listing indicates a large company with deep pockets, a small, privately funded trust—or one whose shares are traded in AIM or Ofex—could prove to have better local knowledge, equally experienced management and excellent internal management systems. In short, there should be no assumption that a stock exchange listed company is always a better option than one that is not listed.
	The key point is that although I welcome the creation of the REIT regime, the Government should not limit the creation of highly focused local residential trusts through the mechanism of a stock exchange entry and its associated fundraising costs. We have great hopes that REITs will complement the existing social and for-profit rented sector, but that opportunity would be enhanced by a more liberal approach to the regime's operation from the outset. I suspect that the Government have some sympathy with that argument.
	We want a commitment from the Government that they will move as quickly as possible to liberalise the REITs regime, in order to ensure that the hoped-for benefits in the residential sector are brought to fruition, and that REITs do not simply become players in the high-end commercial property market. I hope that, when the Minister sums up, he can guarantee, or at least hint at, the fairly speedy liberalisation of the market. Should that not be forthcoming, we will—should you allow us, Madam Deputy Speaker—press one of our amendments to a vote.

George Young: I commend my hon. Friend the Member for Rayleigh (Mr. Francois) on his eloquent advocacy of amendment No. 130. I was delighted to hear that his arguments have struck a cord in other parts of the House. I agree with what the hon. Member for Dundee, East (Stewart Hosie) said towards the end of his remarks about getting a healthy residential market on its feet.
	I want to speak briefly to amendments Nos. 60 and 61, and I refer again to my entry in the Register of Members' Interests. Although it is not a registrable interest, I was also a member of the Oxford University Conservative Association, although the impact that I made may have faded by the time the Economic Secretary signed up a few years later. This is the fourth and penultimate time that I will speak in the Finance Bill proceedings on real estate investment trusts. Let me summarise where we are. There is a background of an all-party consensus on the need for a new investment vehicle to promote investment in residential property, attracting long-term institutional funds, broadening the market, giving a wider choice for those who want to rent and enabling private and institutional investors to get exposure to the residential property market that they do not have at the moment.
	When the Government came into office, there was an all-party consensus that we needed an initiative. The Government took the debate forward and I give them credit for that. We had the Kate Barker report and then, in March 2004, the Treasury consultation paper. In paragraph 1.14, it said that a REIT
	"structure in the UK would therefore set a challenge for the industry to encourage development of new housing, which could...be managed within"
	a REIT structure. The paper went on to say:
	"Improvements and expansion to this sector"—
	the private rented sector—
	"could enhance efficiency and flexibility in the housing market."
	It continued:
	"The Government is keen to encourage greater renewal in the property sector, and the development of new...residential buildings".
	Finally, it stated that the Government were keen for a REIT
	"to stimulate greater development activity in the residential market providing a vehicle into which new properties can be converted and managed more efficiently."
	There is no disagreement on either side of the House about those objectives. The debate in Committee was about whether those objectives would be achieved with the regime that is before us. We had a constructive and, by and large, consensual debate. We established that there was domestic harmony between the Economic Secretary and the Minister for Housing and Planning on the approach to REITs and that the framework for our debate was what the Chancellor said in his Budget speech:
	"To attract more capital into house building, we are now legislating to introduce for Britain the real estate investment trusts that are so successful in the USA."—[ Official Report, 22 March 2006; Vol. 444, c. 293.]
	I want to bring one or two points from the debate to the attention of the House. The Economic Secretary was asked what went wrong with the previous initiatives and he replied:
	"He"—
	I suspect that he meant me—
	"will probably agree that the regime did not work; in our view, it was too prescriptive and insufficiently flexible and thus did not attract capital."
	There is some concern that the new regime may have the disadvantages of the regime that he criticised in that debate. He went on to say:
	"We are trying to deliver a regime that will be more flexible and more appropriate for residential property investors."
	I will come to that in a moment.
	The debate spanned a morning sitting and, as my hon. Friend the Member for Rayleigh said, a rather warm afternoon sitting. Again, I want to pick up on some of the key points of that debate. The Economic Secretary said that he fully supported the
	"objective of encouraging further investment in residential property."
	We probably pushed him right to the limits of his negotiating powers by extracting from him a general undertaking that if things did not go as he hoped, he would have another look at the matter. He did not go quite as far as we all wanted, but at the end I withdrew the relevant amendment, saying:
	"The Minister is a reasonable man, and he went as far as I suspect his brief allows him to go in giving the undertaking. Without prejudice to the possibility of bringing back on Report a related amendment...I beg to ask leave to withdraw the amendment."—[ Official Report, Standing Committee A, 8 June 2006; c. 479, 503, 509.]
	I remind the House that there is enormous potential here. I understand that there is a proposition to build the Olympic village through a REIT. There is also the possibility of using REITs to provide student accommodation and other opportunities. However, the key question is whether we will have the correct regime. My amendments Nos. 60 and 61 approach the problem from a slightly different angle from the one that I moved in Committee. They would amend clause 112, which introduces the entry charge, or conversion charge, which is the entry tax that one must pay if one wishes to become a residential REIT.
	It is worth bringing to the House's attention the fact that the entry charge, or conversion charge, was not a feature of the regime initially proposed by Kate Barker, who focused on residential REITs. The conversion charge came on to the radar when the concept was extended from residential REITs to commercial REITs. By converting to a REIT, a quoted company will avoid capital gains tax liabilities, so to defray any possible loss of revenue, the Government decided to introduce a conversion charge to compensate the Treasury for the prospective loss of finance. I have no difficulty with that as a concept. In my view, the charge was set at a generous level, and the Minister explained how it was calculated. When the announcement was made, the market was pleasantly surprised.
	Although a conversion charge might be appropriate for a commercial REIT, I argue that it is wholly inappropriate for a residential REIT. We have established that no quoted residential property company is likely to convert, so a residential REIT will have to start from scratch. In an earlier intervention, the Economic Secretary referred to 17 housing associations that are forming a consortium with a possible view to converting to a REIT. If one examines the model that that consortium will have to follow, there are severe disincentives to adopting the REIT structure.
	The first thing that will happen when a housing association wants to put its residential properties into a residential REIT is that it will have to pay capital gains tax on any profit from the disposal of those properties. That will crystallise a capital gains tax liability that would not have been there otherwise. Capital gains tax will have to be paid on any properties transferred from the existing portfolio to a residential REIT. Secondly, stamp duty at 4 per cent. will be payable by the REIT vehicle on purchase, and, thirdly, the REIT will have to pay a 2 per cent. charge on conversion. Those are serious disincentives before any new supply is created. If the objective is to establish a more benign fiscal regime, it is absurd to start by expecting a residential REIT to pay three taxes that it would not have to pay at the moment.
	I shall outline what has gone wrong. The original regime was aimed at residential REITs, but that has been transferred to cope with commercial REITs, so that regime is simply inappropriate. The Economic Secretary is frowning, but those three taxes—capital gains tax, stamp duty and the conversion charge—will be payable before a residential REIT gets into the business of providing new homes, which is the object of the exercise. In a sense, the commercial property companies have become the cuckoo in the nest. The nest was originally designed for residential REITs, but the cuckoo has come along and displaced the original occupant—the residential REIT. Unless the Minister makes a concession today or at a later stage, I am worried that the hurdles that will confront— [Interruption.] I will happily give way if the Minister is about to indicate that he will accept my amendments, or indeed waive some of the taxes to which I referred.

George Young: I am slightly sorry that the Minister has taken so seriously the analogy that I was trying to convey to the House. In Committee he displayed traces of humour, which we enjoyed. I am sorry that that is the best response that he can produce to the rather serious case that I was making, which is that the regime—or the nest, if he does not find that reference offensive—most appropriate for the commercial sector is not appropriate for the residential sector. There is an offshore alternative to UK REITs, which the Treasury should not ignore.
	I hope that the Economic Secretary will reflect on the fact that there are some serious hurdles to overcome before the residential REIT gets going. I also hope that, when he winds up the debate he will exhibit some flexibility—and possibly some humour—in his response to my case, which I have made against the background of the model that will be used by the very housing associations that he mentioned earlier.

Brooks Newmark: I, too, would like draw attention to my entry in the Register of Members' Interests. In common with my right hon. Friend the Member for North-West Hampshire (Sir George Young) and the Economic Secretary, I was also a member of the Oxford University Conservative Association. I hope that hon. Members will forgive me for not registering that interest before.
	The objectives are quite simple—they are first, to stimulate an onshore REIT market, and secondly, to achieve the Government's and the Chancellor's aim of having a REIT market that stimulates residential housing. Those are the two aims that we want to achieve.
	When I read that Paul Herrington, head of UK property investment at Foreign and Colonial, believes that the Chancellor's proposals for REITs are welcome, it has to be a good thing. He thinks that the proposals
	"confirm property's position as the main alternative asset class to equities and bonds"
	and that changes need to be made to the Finance Bill. He recognised REITs' importance as an alternative asset class and went on to argue:
	"There are other types of property investment vehicles that are currently outside the Reit regime. These include offshore investment trusts, limited partnerships and some very successful companies listed on Aim, which are likely to stay outside of it under currently proposed rules".
	He continued:
	"By excluding Aim, we might end up with a two-tier market like a Premier League and a Division One."

Colin Breed: Does the hon. Gentleman think that having smaller REITs may enable more local and regionalised funds to be brought into play? Many people feel that they would like to help particular geographical areas, rather than necessarily contributing to the national pot. The smaller ones, operating on a regional and local basis, can be very attractive.

Brooks Newmark: The hon. Gentleman makes an excellent point. We discussed in earlier debates how to stimulate housing, but not just in the south-east where there are enormous stresses and strains. My hon. Friend the Member for East Surrey (Mr. Ainsworth) alludes on his website to the fact that there is already far too much house building in the south-east. If we want to stimulate such building out in the regions—I see that I have finally got the attention of the Economic Secretary—I suggest that we follow Schumpeter's principle that small is beautiful. If we want to encourage regional housing developments that tend to be smaller, the particular residential housing required is more likely to be of the right size to be on AIM, but not to have the wherewithal, facility or finances to list on a fully listed stock exchange.
	The then Economic Secretary repeated a commitment in Committee of the whole House:
	"We are willing to consider any consequence of market developments...We must always be willing to consider whether we want to change the regime in the interests of the market and clearly not to the disadvantage of the Exchequer."—[ Official Report, 3 May 2006; Vol. 445, c. 1041.]
	I would be interested to know whether the current Economic Secretary is still willing to be open minded about the matter. Perhaps he would like to intervene? I guess not. As AIM listing will have no adverse impact on the Exchequer—I recognise that the Economic Secretary and the Chancellor are concerned about that—will the Economic Secretary give a commitment at least to review the listing requirement in response to the lack of expected take-up from the residential property sector? That is all we ask. We want the Economic Secretary to be open minded and watch how the market develops. If the Government are not achieving their aims of stimulating the residential, not simply the commercial side, for REITs, we ask them at least to take an open-minded approach.
	It is worth considering the comments of my hon. Friend the Member for Rayleigh (Mr. Francois) in Committee, when he gave a good analysis of the benefits of AIM. I must quote his thorough analysis in full. He stated:
	"AIM-listed companies already provide a legitimate form of collective investment, so why have the Government decided to exclude them from the REIT regime from the start?"
	The Economic Secretary never answered that. My hon. Friend continued:
	"On a practical level, property companies that are registered as REITs are likely to enjoy significant tax advantages over those—usually smaller—companies that are denied the advantages that REIT status confers. There could therefore be considerable consolidation in the market as REITs take over other property companies such as those on AIM"—
	my hon. Friend made that point again earlier today—
	"which cannot qualify for REIT status. That is potentially unfair".
	I know that the Economic Secretary views fairness as an important criterion when considering such matters.
	My hon. Friend continued by saying that, over time, that inability to qualify
	"could mean that the UK property market was increasingly dominated by a relatively small number of large REIT companies. I presume that the Government did not intend that. We would move in the direction of an oligopolistic market and I am not sure that Ministers want that.
	Moreover, AIM-listed companies might come under pressure to convert to a full stock exchange listing before they were ready for it, principally to qualify for REIT status, thus potentially causing a distortion in the orderly evolution of the market sector. Why not, therefore, expand the condition to cover at least AIM-listed companies"?
	My hon. Friend makes that point time and again. He was dogged—indeed, almost terrier-like—about it. He continued by saying that expanding the condition would
	"thus facilitate greater diversity in the REITs market available to investors... There is a strong common-sense argument for doing that."—[ Official Report, 3 May 2006; Vol. 445, c.1026.]
	I agree with that.

Brooks Newmark: To clarify, Madam Deputy Speaker, I was previously talking about my hon. Friend's analysis of AIM and I am now moving on to the regulatory regime.
	AIM does not stipulate minimum criteria for company size, track record or the number of shares required to be in public hands. The Government gave a parliamentary answer in response to queries about AIM's regulatory position. In November 2003, the right hon. Member for Coatbridge, Chryston and Bellshill (Mr. Clarke) tabled a written question:
	"To ask the Chancellor of the Exchequer...what discussions he has had with the (a) London Stock Exchange and (b) Financial Services Authority on the alternative investment market becoming an unregulated market...what research he has carried out on the way in which an unregulated alternative investment market would affect companies and investors"—
	an important question—
	"and what discussions he has had with the European Commission about the alternative investment market becoming an unregulated market."
	The response, given by the right hon. Member for Bolton, West (Ruth Kelly), said:
	"The London Stock Exchange...is a Recognised Investment Exchange...under the Financial Services and Markets Act...and"—
	this is the important part—
	"has to operate all its markets, including the Alternative Investment Market (AIM), in compliance with the recognition requirements for REITs. The Financial Services Authority...supervises its compliance with these obligations...Because AIM is not going to become an unregulated market, the Treasury has not done any research about the impact of such a scenario on investors and issuers, nor have we discussed it with the European Commission."—[ Official Report, 4 November 2003; Vol. 412, c. 624-25W.]
	5.30 pm
	Let us come to the important issue, which is the housing requirements that the Chancellor, the Economic Secretary and, I assume, the Paymaster General are seeking. The Chancellor, as we have heard, said in this year's Budget speech:
	"To attract more capital into house building, we are now legislating to introduce for Britain the real estate investment trusts that are so successful in the USA."—[ Official Report, 22 March 2006; Vol. 444, c. 293.]
	So, we hear two things now. We hear that the Chancellor is looking to the US as an excellent example of successful REITs, and he is looking at REITs as a way of stimulating the housing market. However, we have heard today that the main emphasis with REITs seems to be on stimulating the commercial side of the market rather than the residential side. The success of REITs in the USA is arguably because there is no listing requirement at all, which the Chancellor does not seem to have acknowledged. The important point is that without such a requirement smaller, more flexible residential property companies, would be allowed to participate.
	What do the Government really intend REITs to achieve? All the evidence points to the death of the original concept of stimulating investment in the residential property market. The hon. Member for Bury, South (Mr. Lewis), when he was Economic Secretary, said that
	"one of the aims of introducing UK-REITs is to improve efficiency, affordability and professionalism in the private rented sector to the benefit of residential tenants."—[ Official Report, 13 February 2006; Vol. 442, c. 1556W.]
	However, my right hon. Friend the Member for North-West Hampshire has said:
	"When the concept was originally considered, there was concern that it should not simply be a new vehicle for existing property companies. Consideration was given to a requirement that, in order to qualify for a REIT, one would have to add to supply."
	He also said:
	"Housing hardly gets a mention in the post-Budget comment on REITs."—[ Official Report, 24 April 2006; Vol. 445, c. 422-23.]
	Dave Ramsden, of Her Majesty's Treasury, said:
	"We would expect that REITs in the version we have ended up with—REIT UK, if copyright allows us to call them that but that is another story—are more likely to encourage flexible investment in commercial property. That is clear from the consultation. It does not mean that we will not get some residential property, I think we will get some but it is not going to be the main focus of the REIT."
	That is the point that we continue to make: REITs are stimulating not the residential housing market, but the commercial property market.
	The debate over listing, however, consists of two main points. The argument for public listing—this is an important point that the Government make—is that it would subject companies to the appropriate listing authority rules regarding investor base, disclosure and market scrutiny, and would therefore help to ensure suitability for a wider retail investor base.

David Gauke: Indeed.
	I wish to consider whether condition 3, which requires REITs to be listed on a recognised stock exchange, is appropriate, as it excludes shares traded on the alternative investment market. My hon. Friend the Member for Rayleigh (Mr. Francois) made an eloquent case for the inclusion of such shares. In the Committee of the whole House, however, the then Economic Secretary, the hon. Member for Bury, South (Mr. Lewis), argued against doing so, and the present Economic Secretary referred to those arguments in Standing Committee. Three arguments have been deployed including, first, the assertion that REITs require full regulatory protection, presumably to avoid a scandal. REITs are new products, so one would not want something to go wrong in the early years by listing them on AIM, which is regarded as a higher-risk market.
	We must, however, consider AIM's role. My hon. Friend did so, and spoke about the market's success. I, too, have visited the London stock exchange website, and the very first words on the AIM homepage state that the market is
	"specifically tailored to growing businesses".
	Many REITs are growing businesses—as a new product, they will probably grow larger—so it is appropriate to list them on AIM. The hon. Member for South-East Cornwall (Mr. Breed) said that the market provides an opportunity for regional REITs, as did the hon. Member for Dundee, East (Stewart Hosie). That is an important element which I, as a localist, would support.
	The argument is about investors trusting the investment manager. If they want the security of a more highly regulated market, they should invest in REITs that are listed on the London stock exchange or their European equivalents. If that is what the market demands, there are unlikely to be many REITs listed on AIM. There could easily be REITs that are aimed more at institutional investors, which it would be more appropriate to list on AIM because it is less regulated and less expensive. I therefore do not find that argument entirely convincing. However, it is worth stressing that at almost every stage of the Bill, the Government said, and I hope the Economic Secretary will reiterate, that the matter will be kept under review.
	When we discussed AIM in Standing Committee, the flavour of the remarks made by the Economic Secretary was that AIM was part of a transitional process: a company lists on AIM for a while, then it grows and gets a full listing. Clearly, some companies do. The figures on the London stock exchange and AIM website that were quoted by my hon. Friend show that in total 1,528 companies are listed there. The total number of admissions is 2,401. Many of the 900 or so companies that are no longer listed on AIM will no doubt have a full listing. Some may not. Some may have been merged, and others may be de-listed altogether. That still leaves a substantial number, 1,528, which remain on AIM, so we should be a little careful about characterising AIM as a stage that a company passes through. It does not always work like that. For many companies it is their final destination.
	I turn to the second argument used by the former Economic Secretary, that the expression
	"'recognised stock exchange' is a fundamental concept used in our tax legislation."
	That is true, but it should not be leading policy. Just because the expression "recognised stock exchange" is appropriate for qualifying for an ISA, that does not seem to be a persuasive argument for it to apply to REITs and for condition 3 to be drafted as it is.
	The third argument, which my hon. Friend dealt with thoroughly, was set out by the former Economic Secretary when he said:
	"Thirdly, and crucially . . . it would not be possible to allow companies with shares listed on AIM to be eligible for the regime without also extending the same position to companies listed on similar markets in the European Union."—[ Official Report, 3 May 2006; Vol. 445, c. 1044.]
	He made two arguments to support that. One was the cost to the Exchequer of allowing that to happen, which the former Economic Secretary said would be difficult to quantify at this point. The second was the risk for small investors.
	The same points about caveat emptor, trusting the people and the reality of the risk can be made again, but I come back to what my hon. Friend said about condition 1, which states that a company must be UK resident in any event. If that is the case, it is unlikely to want to list in another EU jurisdiction. If it does, that is unlikely to be a commercial advantage in marketing it to the UK, particularly if it was listed on an EU version of the alternative investment market. That would be commercially unattractive, so companies are unlikely to do it. If it is attractive commercially, that is probably because those companies are able to overcome any reputational concerns about the particular market. If the company is able to overcome such reputational concerns, the second argument—the risk to small investors—is likely to fall away. The matter comes down to the issue of the cost to the Exchequer. I am sceptical that it would be extremely expensive, because, for the reasons that I have outlined, few companies will list on foreign exchanges. The leading exchange in Europe is the London stock exchange, and the leading alternative investment market in Europe is AIM.
	I ask the Government to continue to review the matter. As one former member of Oxford University Conservative Association to another, I ask the Economic Secretary to look again at the policy. If the Government are not prepared to accept the amendment today, I hope that they will review the matter soon.

Philip Dunne: I do not want to disappoint hon. Members who were members of the Standing Committee, so I shall declare an interest: I am currently chairman of two fully listed companies, one of which is an investment vehicle and the other of which is a real business, although I will be in that position for a matter of days because the company has just been taken over.
	Craving your indulgence for a moment, Madam Deputy Speaker, I was also at Oxford university, although I was not a member of OUCA. However, I was educated at the same college as the Economic Secretary, where we shared some of the same tutors, although I cannot recall reading any of Professor Davison's texts.
	I apologise to my hon. Friend the Member for Rayleigh (Mr. Francois) for missing his opening remarks on amendment No. 130, because I was engaged in Select Committee. The Government are caught in an academic dilemma—the distinction between the full market and AIM—which may stem from the academic approach that the Economic Secretary has taken to many of the clauses in the Finance Bill, but I want to draw to his attention what is happening out there in the real world.
	My hon. Friends have already referred to some of these statistics. If one casts one's mind back to the beginning of this Government, 2,704 companies were listed on the main market, and 252 companies were quoted on AIM at the beginning of 1997. As we have heard, the number of quoted companies on AIM had risen to 1,528 by the end of May, which is an increase of 1,276. Over the same period, companies were leaving the full market in droves, many as a result of takeovers and some as a result of migrating down from the main market to AIM. The numbers are revealing: there are currently 1,326 UK companies left on the main market, 29 per cent. of which are investment vehicles, which means that there are now only 939 UK trading companies on the main market. That significant reduction has been more than matched by the increase in the number of companies quoted on AIM.
	It is also revealing to discover that there are 43 real estate, holdings and development companies on the main market, yet 70 real estate, holdings and development companies are currently quoted on AIM. I contend that companies that have the choice of whether to take advantage of full market listing or to list on AIM tend to list on AIM, because of the lower costs, lighter regulation and the fact that the market has matured. AIM is now regarded as an appropriate place to gain access to capital, whereas in the early days people had their doubts. When the company that I took to market was listed in 1998, we regarded it as appropriate to go direct to the main market, although it was a small company, because there were concerns about access to capital on AIM. Those concerns have been substantially overcome.
	We therefore have to ask ourselves why the Government are not prepared, at the introduction of this new regime, to sanction quotation on AIM as perfectly legitimate and appropriate for new REITs. The arguments that they advanced have been thoroughly demolished by my hon. Friend the Member for South-West Hertfordshire (Mr. Gauke) and, I am sure, by my hon. Friend the Member for Rayleigh, whose comments I look forward to reading tomorrow in  Hansard. The argument advanced by the Economic Secretary in Committee—that there would be a greater potential risk to investors should these shares be available on AIM—is palpable nonsense. I hope that he will reflect on this debate and on what was said in Committee and will be prepared to accept amendment No. 130 if it comes to a vote.

Edward Balls: I have a wide range of speeches and points to respond to. The right hon. Member for North-West Hampshire (Sir George Young) accused me of taking him seriously, and criticised me for it. We had an interesting debate about the distinction between Schlumpeter's and Schumacher's views on the concept of "small is beautiful". The hon. Member for Ludlow (Mr. Dunne) chided me for not understanding the real world, having just admitted in his declaration of interest that he runs an unreal company. It would be interesting to find out what that means in practice.
	There have been several other references to the past, and I am happy to explain the position. Conservative Members might have heard of a writer called Geoffrey Trease, who wrote a series of books about Bannermere, a fictional lake in the Lake District. The hero of the books goes to Oxford university, the first of anybody in his family to do so. When he gets there he joins all the political societies so that he can go to hear all the speeches at all the political clubs. I did the same. I joined the Labour, Liberal and Conservative clubs and went to hear very many speeches. I heard the then Chancellor of the Exchequer discuss the economy and the then Trade and Industry Minister discuss industry and housing. That was very interesting, as both of them left the Government within months.

Mark Francois: The hon. Gentleman says that at Oxford he even joined the Liberals, as they would then have been. If he was so liberal in deciding to join all those different markets at the same time, why cannot REITs list on the AIM?

Edward Balls: Thank you, Madam Deputy Speaker.
	We have also discussed, in passing, real estate investment trusts, which we debated at length in Standing Committee and in the Committee of the whole House. I am pleased that there is cross-party support for our aims for the REITs regime. We believe that it will be successful when it is introduced next January, that it will remove inefficiencies that currently persist in the commercial and residential property investment markets, and that it will support our wider housing policy and the implementation of the Barker review.
	I will not go over all the points that were debated in Committee, but try to respond in detail to some of those raised today. I shall start by responding to the hon. Member for Rayleigh (Mr. Francois) on Government amendments Nos. 27 to 30. On 2 June, I made available to Committee members the draft excluded business regulations, which amended schedule 16. That followed a commitment made by my predecessor, my hon. Friend the Member for Bury, South (Mr. Lewis), which I was keen to honour not only in the spirit but the letter to give sufficient time for proper consideration. As the hon. Member for Rayleigh reminded us, we had a detailed discussion about car parks, phone masts and other matters. I hope that we provided clarity that will give the industry a basis on which to plan ahead. During that debate, I explained to hon. Members that a better way to effect these changes than the draft regulations would be by way of a Government amendment to the Bill as it passed through its parliamentary stages. As I explained to the Committee, the points that prompted the changes had been raised at a very late stage and it had not been possible fully to analyse the issues in time to table an amendment in Committee. Instead, we decided to expose the issues in draft regulations and to consult on the details, with the aim of making the necessary changes through amendments to be tabled on Report.
	Government amendments Nos. 27 to 30 are the outcome of that consultation. They deal with two sets of circumstances: owner-occupied property, and property held as trading stock. Amendment No. 28, which deals with trading stock, aligns the treatment of rental income from this kind of property with that already set out for rent incidental to a trade of property development. The amendment will keep trading stock property out of the ring fence, which will mean that the incidental rent will be taxable but the measure will remove the threat of double taxation that could otherwise follow from taxation of any increase in the value of the property at conversion and the levy of an entry charge on the same value. The industry was keen for us to clarify that position.
	Amendments Nos. 27, 29 and 30, which deal with owner-occupied property, address two issues. The first is to ensure that rental income from owner-occupied property is excluded from the tax-exempt business of a UK REIT, as was our original policy intention. The second is to allow into the ring fence some properties that, despite being let to unconnected third-party tenants, fall to being accounted for as owner occupied. Their exclusion was an unforeseen consequence of the international accounting standards definition of "owner-occupied"—as the hon. Member for Rayleigh pointed out—and not in line with our original policy.
	These changes are the result of points being brought to our notice by the industry, and I am sure that it will welcome them. They are fully consistent with the statements that I made in Standing Committee. On the definition of owner-occupied property, I can assure the hon. Member for Rayleigh and the House that we will continue to work with the industry and to listen to any issues arising on the matter. I hope that that will give him the reassurance that he seeks.
	A number of issues have been raised today that pertain to the more general question of the balance between residential and commercial property. I will deal with the specific points first, and refer to the general issue at the end. I shall deal first with amendments Nos. 64 to 68, and then with amendment No. 130, which deals with the listing requirement.
	Amendments Nos. 64 to 68 have been tabled by the hon. Member for Banff and Buchan (Mr. Salmond) and his colleagues, and were spoken to today by the hon. Member for Dundee, East (Stewart Hosie). Taken together, they would remove altogether the requirement that a company should have its shares listed on a recognised stock exchange before it can become a UK REIT. That would allow any company to enter the regime. We have estimated that the cost of the amendments, if passed, would run not into tens or hundreds of millions of pounds but into billions of pounds. It would therefore be quite wrong to accept them. I hope, however, that in explaining why we believe that a requirement for listing is important I shall be able to give some reassurance to the hon. Member for Dundee, East.
	Amendment No. 130 also relates to the listing requirement. However, rather than removing it altogether, it seeks to extend the definition to include the alternative investment market—AIM—of the London stock exchange and its equivalent in the European Union. This issue was debated at length during the Committee of the whole House, as well as in the Standing Committee. Following those Standing Committee debates, I looked again in detail at our requirement for a full stock exchange listing. As I explained to hon. Members at the time, I had come late to those debates—my hon. Friend the Member for Bury, South was the Minister during the Committee of the whole House—and I wanted to understand the difference between a full listing on the London stock exchange and a listing on the AIM.
	In passing, I want to say that I completely associate myself with what the hon. Member for Rayleigh said about the success of the AIM, and its importance not only as a liquid market but a tax advantage market, compared with a full listing. Capital gains tax, inheritance tax and loss relief are all reasons why we tax advantage an AIM listing in order to bring new companies into listing. The success of London as a market that attracts listings from around the world has increased substantially over the past few years, and I am sure that the success of the AIM is part of the broader success of London as a centre for listing. Therefore, I fully support the continuance and strength of the AIM.
	We always aimed to ensure that the UK REIT regime would make property investment accessible to small investors in a way that was revenue neutral in tax terms while providing proper protection. The requirement for a listing on a recognised stock exchange assures investors, especially small investors, that their investments are covered by the full protection of direct regulation by the Financial Services Authority. That has a direct bearing on companies, through rules on dispersion of the share base and share approval for major transactions. An AIM listing has several tax advantages, while a full listing on the stock exchange has several more onerous requirements, ensuring proper protection for the smaller investor through direct FSA regulation, but also ensuring that the tax advantages that I set out are used for the intended purpose. We argued consistently that the right approach was to restrict the REIT regime to a full listing, partly to protect the revenue base and to ensure that it is revenue neutral, and partly to protect the small investor. We made that point consistently in consultation and in discussions with several interested parties, including the Investment Property Forum, the British Property Federation and the Royal Institution of Chartered Surveyors, and our objective has always been understood.
	Aside from the regulatory aspects, it is important to take account of suggested changes to the rules in the context of the regime as a whole. We are considering a package of legislation and conditions that combine substantial tax advantages with substantial restrictions and protections to ensure that we achieve our objective, but in a way that does not run to substantial cost. While the costs of the Scottish National party amendments would run into billions of pounds, there is no doubt that these amendments would cost hundreds of millions of pounds, not least because allowing such listings to qualify for other European markets would run not only a regulatory risk but a financial one. As I said to the hon. Member for Rayleigh, I have considered the matter again, as I wanted to understand exactly what was happening, and we still believe that we have the right balance of regulation and protection to achieve a revenue neutral package and encourage the establishment of a REIT regime.

Mark Francois: If more companies were allowed to list as REITs on the AIM, they would put their property portfolios into the REIT regime, on which a 2 per cent. entry charge would be levied, which would be revenue raising. The Economic Secretary said that part of the Government's rationale in not allowing REITs to list on the AIM was to protect small investors. What is the difference in principle between small investors investing in lots of other companies listed on the AIM but not in property companies listed on it?

Theresa Villiers: I shall try to match the Paymaster General for brevity, but I cannot guarantee that I will be quite as quick as she was.
	Although there are a number of aspects of the Finance Bill that we support, we have grave concerns about a number of its provisions, and the Opposition will therefore be voting against the Bill this evening. Before turning to the provisions—I assure the House that I am not going to take each one in turn—I echo the right hon. Lady's thanks to all the Members who have participated in what has often been a very constructive series of debates. I want also to put on record the debt of gratitude that my Front-Bench colleagues and I owe to many professionals and professional organisations that have given us impartial and very useful advice to aid us in scrutinising the Bill.
	Turning to the matters on which there is a degree of consensus across the House, we welcome the broad thrust of the Government's attempt to prevent the abuse of charitable reliefs. However, we share a number of the concerns of the charities tax reform group, particularly in relation to the paperwork and record-keeping requirements imposed on charities.
	We welcome also the attempt by the Government in clauses 95 to 98 to provide a legal and tax framework to accommodate sharia-compliant finance arrangements of wakala and diminishing musharaka. I acknowledge the valuable work done by the Government on this issue, which is important not only for our international competitiveness in an increasingly important global market in Islamic finance but for tackling financial exclusion in Britain's Muslim community. I take the opportunity to pay tribute to one of the imams in Barnet, Mufti Barkatullah, for his work on this important matter.
	We also welcome, as we have said this afternoon, the Government's framework for real estate investment trusts. We feel that the reform is long overdue, since such structures have been in place in other developed economies with great success for many years. We also feel that more could be done to encourage residential property in REITs, and we continue to believe that REITs quoted on the alternative investment market would be feasible and a sensible extension of the framework provided for in the Bill.
	Although we welcome clause 19, on cracking down on missing trader fraud, we want to know when the Treasury will get the EU derogation that it needs to put the clause into operation. We are grateful for the assurances given on that point by the Paymaster General. I emphasise again the urgency of tackling this problem, which as we have heard again today is estimated to have lost the Exchequer about £1.9 billion in 2004-05. The problem is now so serious that it is undermining the accuracy of our trade figures, and it is high time the Government took effective action to tackle this organised criminal fraud, which is depriving the Exchequer of so much money.
	I move on to more contentious matters. One of the main reasons for opposing the Bill is that we do not believe that it is a green Bill. We do not believe that it implemented a green Budget. The Red Book shows that the proportion of green taxes is falling as a proportion of tax revenue. It is lower than it was in 1997-98. The Chancellor's headline-grabbing scheme on car tax will have a minimal impact. Anyone who delves into the small print will find that schedule 8 abolishes tax incentives for leasing environmentally friendly equipment. We regret that the Government voted down the entirely reasonable demand that the Chancellor report to Parliament on the uptake of crucial microgeneration technology.
	As for the climate change levy, sticking in the words "climate change" does not mean that the levy works to tackle climate change. It is a tax that does not do what it says on the tin. Yes, some of the climate change agreements that the levy has produced have been useful but the fundamental problem remains that it is a tax on energy and not on carbon. It needs to be converted into a genuine carbon tax that does much more to encourage and promote the uptake of clean renewable energy than it does at present.
	The second key reason for opposing the Bill is that we believe that it will further undermine our competitiveness in an international world economy. The Chartered Institute of Taxation put the problem in measured terms as follows:
	"We appreciate that the UK's competitive position depends on a number of factors and that potential investors in the UK will consider the whole business environment and not just the tax system in isolation. Our experience is that the UK is becoming regarded as a more difficult place to do business, with the complexity of the tax system being perceived as a disincentive to invest."
	The institute describes the UK tax system as "spinning out of control".
	It appeals for an end to
	"excessive tinkering with tax rules."
	The abolition of the zero percent rate of corporation tax and other changes to business tax relief are prime examples of chronic instability in our tax regime. Year in and year out, the Chancellor announces initiatives that make a good sound bite in the Budget. He is not in his place today but he turns up for the Budget. Businesses carry out the difficult time-consuming and expensive task of adapting to yet more changes in the tax system. Just as they have become used to those changes, the Chancellor scraps them and his cycle of continuing revolution continues.
	This pattern of volatility recurs in clauses 31 to 47, in introducing a new regime for the film industry. The Chancellor introduced major changes to film tax in the Finance Acts of 2000, 2002 and 2004-05. Yet still the reliefs haemorrhaged a staggering £560 million from the Exchequer in the past financial year. An entire industry has developed around the misuse of these reliefs. The Opposition certainly hope that the Government's latest attempt to focus tax breaks more accurately on people making films will provide better value for money than reliefs have proved to date.
	We are not sorry to see the back of the sections 42 and 48 reliefs. We hope that the Government have at last got it right; otherwise, expect "Groundhog Day" this time next year with yet more changes to the film tax regime in the Finance Bill 2007.
	The continual cycle of change has produced a huge amount of uncertainty in the film industry and has jeopardised some important projects. For example, the filming of the latest James Bond film has moved to the Czech Republic. Even the Government's most famous civil servant has moved offshore, partly as a result of the instability caused by changes in the film tax regime.
	I move on to a rather less glamorous aspect of the Bill. Schedules 8 to 10 introduce what the Finance and Leasing Association describes as the biggest change to leasing taxation for a generation. A thriving leasing industry is crucial for business investment and productivity, both of which have performed poorly under Labour. We are not convinced that the Government have fully thought through the impact of these eye-wateringly complex new provisions, given their impact on business investment, on indirect investment and on the public sector. These areas face higher leasing costs as a result of the changes.
	We are dismayed at the phenomenal complexity of pension provisions, supposedly adopted with a view to simplification. We believe that the Government's attempts to prevent recycling of lump sums could discourage people from saving for their old age. The provisions are incredibly widely drafted. The Economic Secretary tells us, "Don't worry, innocent transactions will be excluded by detailed guidelines." It is not acceptable to draft a hugely expansive statutory provision that catches many entirely innocent taxpayers and then to say, "It is OK because we will not tax everyone who falls within the statute. We will only tax the bad guys." This is suspiciously close to taxation by decree. That is why Opposition Members oppose the provisions. We regret that the Government have failed to address the injustices caused by the annuity rule.
	We strongly oppose the Government's hare-brained proposal to bring forward the filing dates for tax returns to September. The Carter report would involve a huge amount of unnecessary hassle for taxpayers and would impose great pressure on their professional advisors, so we urge the Government to reject it.
	The abolition of the home computing initiative is a major blow to the competitiveness of the economy. Thousands of low-income families, many of whom would find it difficult to obtain credit to buy a personal computer on the open market, have benefited from the scheme. The Government's decision to abolish a scheme that it recently relaunched does not help us to embrace the digital age or develop the highly skilled work force that we desperately need to compete with the new global economic giants of China and India. It does not help the Government Departments that were rolling out the scheme when the Chancellor's axe fell; nor will it help working people in Britain to develop a good work-life balance; nor does it help people striving to improve their skills and their lives.
	In conclusion, the Opposition oppose the Bill, because it fails to equip us to compete effectively in the globalised world economy. It heaps further confusion, complication and instability on a tax system that the Chancellor has made one of the most complex in the developed world. It contains no effective measures to tackle climate change, and despite the Chancellor's ignominious retreat on a range of key issues, schedule 20 still imposes punitive new inheritance tax charges on a wide range of ordinary hard-working people whose only wrongdoing is to use a trust to provide responsibly and prudently for their family's future. Those iniquitous new IHT charges were introduced without consultation. They are deeply flawed, which is why the Government have tabled no fewer than 50 amendments to the schedule that brings them into effect. They are retrospective, and they penalise thrift and prudence. They hit the sick, the dying, the mentally ill and the vulnerable, as well as those struggling with the misery of divorce. They have caused needless anxiety to thousands of people across the country, and I urge the House to oppose them and the Bill this evening.

Julia Goldsworthy: We support certain parts of the Bill, but some of the serious concerns that we expressed on Second Reading remain on Third Reading. However, we broadly welcome the proposals on real estate investment trusts, which are a classic example of the way in which consultation can produce workable legislation. The proposals have been welcomed by industry, because the Government took time to consult, so we largely support them. By contrast, the Government did not consult professionals on their inheritance-tax treatment of trusts, and the result was poorly drafted proposals that would have affected large numbers of individuals and called into question fundamental assumptions in IHT such as the spouse exemption. Dozens of amendments were tabled to improve the proposals. The spouse exemption has been safeguarded, but it is still not clear how many individuals will be affected by the changes.
	Ministers continue to insist that a minority of a minority will be affected, but they have failed to produce evidence to back that up. The Select Committee on Treasury asked for background information before the Standing Committee considered the issue, but it was not produced. I asked for that information in written parliamentary questions, only to be told that it was not normal procedure to release it. There is a significant public interest in making that information available, as it would allay the fears of many people who are still concerned that they will be affected by the changes, so I hope that Ministers will reconsider their decision and publish the information. Despite the many amendments made in Committee and on Report, uncertainty remains, so I am sure that we will revisit the relevant clauses and schedules in future Finance Bills.
	Other changes that were made without any warning include the withdrawal of the home computer initiative, which is another example of the Government throwing the baby out with the bathwater. Indeed, they abolished the initiative without prior warning or consultation. Instead of tightening the definition of relevant equipment, they have removed the scheme altogether, even though it helped to achieve computer access for many households, including low-income households. Besides affecting those families, the scheme's sudden withdrawal has resulted in businesses losing their core work, and has disrupted Government Departments that were planning further roll-outs when the withdrawal was announced.
	Confidence in any similar schemes that may be announced by the Government has been affected because, ultimately, businesses need to be certain of the stability of the systems that they use. Once again, however, that confidence has been undermined or eroded. One has only to look at the changes to corporation tax to see how further instability and complication have been introduced. Gordon Brown has introduced changes virtually every year, and although we welcome the situation that we are now in, why has it taken the Chancellor such a long and circuitous route to arrive back exactly where he started?
	There have been many measures to tackle fraud and evasion, including missing trader fraud, which we discussed again this afternoon. Although the closure of loopholes in the tax system is welcome, considerable complexity has been added to the tax system by the Bill, and the concern is that it will result in a cat and mouse process, with further complication required every year to overcome further loopholes that have been created by further more complex legislation.
	Fundamentally, we see the significance of the Bill in what it does not do, mainly in terms of green action. Limited changes are present in the Bill. We welcome the revalorisation of fuel duty and the climate change levy, but at best these measures will only halt the decline that we have seen in green taxes as a proportion of the total tax take. They will not increase the proportion that it represents. We are disappointed that the Government did not adopt the new clause tabled by the hon. Member for Nottingham, South (Alan Simpson), as it would have helped make strategy, which is clearly lacking from the Government and the Treasury, very clear. I find it astounding that the Paymaster General can refer to the constructive debate that took place on the new clause yesterday, but refuse to support it.
	What we see in the Bill is tokenism of the worst kind, which has been announced with fanfare but will do next to nothing to change behaviour. The clearest example is the introduction of a new band of vehicle excise duty for the most polluting cars, which introduces a differential in value to the next band down equivalent to less than a tank of petrol for the most polluting cars. I was glad to hear the comments of the hon. Member for Chipping Barnet (Mrs. Villiers) about those proposals in her remarks on Third Reading, but we saw no proposals from the Conservatives for green measures. We have seen tokenism from those on the Conservative Benches, too.
	To conclude, what we would like to have seen but in large part did not see is action to follow the rhetoric that is so often expressed by the Government on green issues and on many other important matters. We have not seen any significant simplification of our tax regime. We have not seen any changes to make the tax regime fairer. Inequalities are still growing, and the richest 20 per cent. are still paying less in tax as a proportion of their income than the poorest. We have also not seen any greater devolution of spending power in the Bill. The United Kingdom remains one of the most centralised states in Europe.
	I would like to associate myself and my colleagues with the thanks expressed by the Paymaster General to all Members of the House. The Clerks have been very helpful in their assistance with amendments, as have many organisations, such as the Law Society, the Chartered Institute of Taxation, the Institute of Chartered Accountants in England and Wales, PricewaterhouseCoopers and KPMG, among many others.
	There have been some welcome aspects to the Bill, but we are disappointed by the lack of action on green issues and we therefore cannot support the Bill on Third Reading. There are still significant problems relating to trusts, inheritance tax and other matters about which I have expressed my concerns. I thank you, Mr. Speaker, for your patience in dealing with all of us.

David Gauke: Unlike my right hon. Friend the Member for North-West Hampshire (Sir George Young), this was my first experience of the Finance Bill, and I want to make one or two observations.  [ Interruption. ] I know that hon. Members are keen to watch France play Portugal.
	As we have progressed through the Bill, I have been surprised by how frequently the European Union has cropped up. On Second Reading I addressed the question of why we are substantially changing group relief as a consequence of an European Court of Justice judgment. That is usually an important issue, yet the UK Government have little scope for manoeuvre given the existing constitutional position. Several times during the Bill's passage—for example, when we attempted to tackle missing trader inter-Community fraud, leasing rules or film taxation—we found that the motivation for changing the law was that it was required by an ECJ judgment or potential judgment.
	I echo the remarks made by my right hon. Friend the Member for North-West Hampshire as regards the sheer complexity of the tax system and, as a consequence, the need for outside expert advice.  [ Interruption. ] The Economic Secretary anticipates my point. An error or oversight by Treasury officials was spotted by an eagle-eyed professional adviser—[Hon. Members: "Name her!"] Her name is Mrs. Rachel Gauke, a lawyer at Travis Smith. It would be fair to say that other errors have been spotted by professional advisers who are not necessarily as eagle-eyed as my wife.
	The Government got themselves in a bit of a muddle on their initial drafting with regard to trusts. They attempted to tackle it without consultation, so that professional advisers were unable to provide their input, although they did when the draft Bill was published. To be fair, I must add that the Government have made a substantial number of amendments in that area, for which I am grateful. We now have a better Bill than we did initially—better, but not good enough. The complexity in the tax system remains considerable. Speaking as a non-tax lawyer, it is always difficult to grasp even the relatively small elements that we cover in the course of a Finance Bill.
	As my right hon. Friend the Member for North-West Hampshire said, we live in a globalised world where capital flows from one jurisdiction to another, and we have to be careful to ensure that we have a fair system that not only deals with evasion but is manageable for individuals and for businesses. Conservative Members are deeply concerned that that balance is increasingly being got wrong, which is of major concern for the long-term competitiveness of the British economy.

Helen Goodman: Thank you, Mr. Deputy Speaker.
	I am grateful for the opportunity to convey to the Minister the concerns of my constituents about the proposed reorganisation of the ambulance service in Teesdale by the North East ambulance service. Let me begin by describing, very briefly, the area affected.
	Teesdale is in the western part of my constituency, and measures 325 square miles. The valley consisting of several villages west of Barnard Castle has some 10,000 inhabitants, and 29 per cent. of the population are over the age of 65—twice the national average. The region is an area of outstanding natural beauty and attracts many tourists and other visitors, who unfortunately sometimes come to grief on the 200 miles of B and C roads. There are also four large trunk roads—the A66, the A67, the A68 and the A688—where serious accidents sometimes occur.
	At present, there are two ambulance stations in the area, one in Middleton in Teesdale and one in Barnard Castle, with a total of seven staff working 12-hour shifts and then being on stand-by for 12 hours at night. They have to live within 3 miles of the station so that if they receive urgent calls, they can arrive in time. Under the current rules governing response times, 75 per cent. of life-threatening accidents—accidents in category A—must be reached within eight minutes, while 95 per cent. of category B accidents, involving serious injury, must be reached within 19 minutes. Category C accidents can involve alternative kinds of treatment, but category D requires "GP urgent" calls, and the GP will say what the time should be. Those rules were set by the NHS, and I am sure that the Minister is fully aware of them.
	According to figures from Durham Dales primary care trust, more than 40 night-time emergency calls were received in Teesdale in 2005—the most recent year for which statistics are available—of which 95 per cent. fell into categories A or B, or were "urgent GP" calls. As local GPs have confirmed, that means that in most cases those affected needed hospital treatment. There were 7.5 per cent. more calls than in the previous year. Incidentally, that picture is very different from the national one, in which 70 per cent. of 999 ambulance calls do not fall into the very urgent categories.
	As the Durham Dales PCT says, NEAS has consistently met national response times to save patients' lives, and that has been recognised by the award of a three-star rating for the past four years. That is why people locally find it hard to understand why changes need to be made. In two respects, the situation in Teesdale is different from that in the other rural areas in the north-east, such as Weardale and Northumberland. First, Teesdale is more populous. One of the complaints local people have made is that the level of calls in Teesdale is higher than in Amble or Belford, which are not being reorganised in this way. Secondly, it has not been difficult to recruit staff, which was a problem in Weardale. I am concerned that NEAS, in its enthusiasm for efficient administration, has treated all the rural areas as homogenous, when they are of course quite different.
	The original proposal from NEAS was to close the ambulance stations in Middleton in Teesdale and in Barnard Castle and replace them with single paramedics. That proposal was totally unacceptable, as the nearest hospitals are 30 to 40 minutes away in Bishop Auckland and Darlington, so the time taken to reach hospital would have been extended by 40 to 50 minutes, as the paramedics would first have had to attend and make an assessment. Moreover, the idea would not have met national guidelines. It provoked local people, including health professionals, those working in the service and the patient and public involvement forum. I have received a petition signed by 5,000 people, 3,620 of whom live in Teesdale—a third of the whole community affected. The petition makes it clear that they want a double-crewed paramedic ambulance 24 hours a day, seven days a week.
	Following much work and activism by local people, NEAS has modified its proposal, but I am afraid that it is still putting forward a solution that appears at first sight to be worse than the current one. I shall therefore ask my hon. Friend for some clarifications and assurances. NEAS now proposes to close the Middleton in Teesdale station only. No reason has been given for that. My hon. Friend needs to understand that Middleton in Teesdale is some 12 miles from Barnard Castle. It takes half an hour to get to Middleton in Teesdale, and that time will be added to all journeys to the upper dale, including those to large road accidents on the A roads in the Pennines. Furthermore, it would probably be slower than having people on stand-by in Middleton in Teesdale. Would it be possible to retain the Middleton in Teesdale station? If not, why not?
	As I have explained, the original proposal was that a paramedic would arrive on a motorbike and not be able to take a person to hospital straight away. Could my hon. Friend confirm whether, under the revised proposal, the paramedic will always arrive with an ambulance, which can take the person to hospital immediately, if necessary?
	A third issue that staff have raised with me is the medical qualifications of the emergency care assistants who drive the ambulance, which will be less than those of existing ambulance staff. That does not seem to be very safe, especially for complex problems or where more than one person has been injured, say in a car accident. Surely that marks a worsening of the service and patient care. My understanding is that no job description has been agreed with the trade union, Unison, for the new care assistants. Is Teesdale being used as a guinea pig to test a new practice, in the hope that it can be rolled out nationally if the ambulance service thinks that it works well?
	The latest document from the Durham Dales PCT makes much of the overall increase in staff numbers in the service. Incidentally, I would be interested to know why the new arrangements will leave Weardale and Teesdale with the same number of staff, when Teesdale has three times as many calls as Weardale. More fundamentally, the paper from Durham Dales PCT states that
	"the Community Paramedics will take on a number of other roles in general practice and the wider community."
	That sounds like an ambulance driver cum health visitor cum district nurse role, but it would be helpful to know what proportion of time will be spent in each role. How will that fit in with other work? What would happen, for example, if a community paramedic was helping an old person with medication and an emergency call came in?
	I have some questions about the funding implications in respect of the extra paramedics. Will the PCT, which ultimately pays for the service, have to cut other services to finance the proposals? Has extra money gone into the budget for this year and successive years to pay the additional staff costs?
	My hon. Friend the Minister should be aware of the wider context of the proposal. First, the air ambulance service in the north of England is continuing to struggle financially. The NEAS says that it does not rely on the service, although it is invaluable, so can my hon. Friend tell the House how many times the service has been used in the area over the past two years? As I am sure she is aware, the air ambulance service relies entirely on voluntary donations—unlike Scotland, where it is state funded—and recently one of the helicopters was grounded due to shortage of funds.
	Secondly, there is an interrelationship between the proposed reorganisation and the ending of the GP out-of-hours service in Teesdale, which is another local concern. Soon, there will be no GP service in the evenings or from early evening on Friday until Monday morning, which is 60 hours in total. As the nearest hospital is in Bishop Auckland, 20 miles away, it is highly likely that the ending of that service, coupled with the NEAS reorganisation, will further increase the number of ambulance calls. Has that possibility been taken into account in the proposals?
	The most important thing is that the ambulance service retains the confidence of local people. Chapter 7 of the recent health White Paper, "Our health, our care, our say", is headed "Ensuring our reforms put people in control" and states:
	"People's voices need to be heard and they have to count. This includes everyone, including groups such as children and young people who do not always have the choice to participate...Commissioning must be informed by people's voices and be responsive. Local people must play a role in the planning, design and delivery of services."
	The people of Teesdale have spoken. I hope that they will be heard.

Rosie Winterton: I congratulate my hon. Friend the Member for Bishop Auckland (Helen Goodman) on securing this debate and on expressing so eloquently her concerns and those of her constituents. I take this opportunity to pay tribute to all the NHS staff in County Durham and the Tees valley area who have made such great progress in improving the NHS. I am sure that my hon. Friend will join me in praising the work of NHS staff in helping to make some of the improvements in her local area. Some of the funding increases for PCTs in her area have contributed to more doctors and nurses and to cuts in waiting times in recent years. We all welcome that.
	Real progress has been made in the health service in my hon. Friend's area, but alongside record levels of investment, we must recognise that reform is certainly needed to deliver the NHS fit for purpose in the 21st century that we all want. It is vital that the local NHS can consult local people, and I shall set out some of the structures for doing that later in my speech. As my hon. Friend rightly said, it is important that the views of local people are taken into account. That is why many NHS organisations are looking, with local stakeholders, at changes in the organisation of their services. I am sure that my hon. Friend will agree that, as we see different roles emerge for staff and changes in technology, there is more that we can do to meet patients' needs, and that it is important that we take those steps.
	My hon. Friend asked a number of questions about the background to why changes are being made to the rural ambulance service in County Durham. In June 2005, the Department published the results of our national review of ambulance services—carried out in conjunction with staff—which examined some of the associated clinical issues and the changes that we wanted to make to services. That review set out how we can transform such services, moving them away from a focus primarily on resuscitation, trauma and acute care, and toward becoming a mobile health resource for the whole NHS that takes health care to patients in the community, rather than always transporting them to emergency care. We certainly support the review and we are considering how we can implement the recommendations.
	As my hon. Friend said, her constituency is served by the North East Ambulance Service NHS Trust, which is made up of dedicated and hard-working staff. As a result of their dedication, increased investment and wide-ranging reform of working practices over the past six years, ambulance performance has improved, as my hon. Friend mentioned. The local ambulance service is now reaching more patients with life-threatening conditions faster than ever before. In 2004-05, the service responded to 77.4 per cent. of category A calls within eight minutes.
	However, there is always scope for further improvement, and Durham Dales primary care trust, which commissions ambulance services in the area, has launched a 12-week public consultation exercise on proposals to modernise them. The trust's vision is to provide an equitable emergency care service across the whole area. As my hon. Friend said, the PCT is currently serviced by three standby stations. Staff who have been on duty during the day at those stations are also expected to be available to respond to emergency calls and GP-urgent calls from their own homes at night. So at the moment, the crew are alerted by ambulance control at their homes, they get dressed, travel to the station, pick up the ambulance and respond to the incident. Inevitably, that results in delays, and response times are not always being achieved, due to that delayed action at night. Unfortunately, that can of course mean that patients do not always get the best service that we want to see, and the long hours that crews are required to work are detrimental to their health and well-being, as well as to the overall provision of service.
	The new proposals represent £200,000 in additional investment in ambulance services, which is very important. My hon. Friend asked whether that will be to the detriment of other services, but we should consider the knock-on effects of a reduction in emergency admissions as a result of introducing a new service. It is important to provide that additional investment, and I hope that that gives my hon. Friend some reassurance.
	Standby working practices will be replaced by 24-hours-a-day, seven-days-a-week cover for the communities in Durham Dales, which will ensure proper round-the-clock cover at all times. As my hon. Friend said, the current staff of 11 will be increased to 22 and will comprise 12 community paramedics and 10 emergency care assistants.
	Each ambulance will be staffed by a two-person crew. There will be a highly qualified community paramedic who will be trained to respond quickly, assess and treat patients, and, if necessary, transport them to hospital. An emergency care assistant will be trained to the equivalent level of first aid responders and will also be qualified to drive an ambulance under blue light conditions. That was something that was changed during the pre-consultation period to ensure that an ambulance with a two-person crew would be available at all call-outs. I hope that that addresses my hon. Friend's point.
	That is very much in keeping with the Department's wish to transform the service nationally. That is some of the background. Community paramedics will differ from traditional ambulance crews in that they will work more closely with other health care professionals. For example, working alongside GPs, they will be trained to a higher skill level in areas that will best meet the clinical needs of the community that they are serving. For example, they will be able to treat patients in the community or in a surgery, carry out urgent home visits on behalf of a GP, and assist nurses with tasks such as taking blood, immunisations and monitoring heart rhythm. As a result of those changes, the local health service will be able to make sure that it is making the best use of resources, providing more convenient services from the patient's point of view, and, of course, developing team working.
	Coming back to the wider benefits, more patients being treated in the community will mean fewer unnecessary accident and emergency attendances, which is important when we think about a lot of our constituents, who might be taken to an accident and emergency department because they were not treated at home or in a GP's surgery when they could have been. Once in hospital, it is much more difficult to get out. If we can prevent those unnecessary admissions, it is better for patients and better for the local NHS. However, responding to 999 calls will always be the priority. As is the case now, should there be a serious incident, the ambulance service will always deploy additional ambulances.
	Two double-crew community paramedic ambulances will cover the Teesdale and Weardale areas. The two new bases in the Durham Dales will be for equipment storage and routine vehicle maintenance, replacing the three current stations. The two new ambulances bases would be in Stanhope to cover Weardale, to improve response times to emergency calls, and in Barnard Castle to serve the Teesdale area.
	Ambulance cover in my hon. Friend's area is provided across three stations, as she said: St. John's Chapel, Middleton in Teesdale and Barnard Castle. I am aware of her concerns that these proposals would mean the closure of Middleton station, but it is important to note that Barnard Castle and Middleton in Teesdale currently operate as a single unit. As such, ambulance cover in Teesdale is based in Middleton for only one week in three. For the other two weeks, ambulance cover is provided from Barnard Castle.
	Establishing the community paramedic base in Barnard Castle will formalise that shared rota arrangement. It means that there will be a greater number of staff and a higher quality of service. Barnard Castle has been indicated as the proposed site because its population is 5,326, which is several times larger than that of Middleton in Teesdale. The analysis of calls shows that there are twice as many calls from Barnard Castle as from Middleton. Barnard Castle is centrally located. It is important to stress that no final decisions have been taken and that none will be made until after the public consultation exercise. I will run through exactly how that is taking place a little later.
	The existing system is slightly outdated for a modern ambulance service. Such a service needs to be responsive to the needs of patients and to improve the working lives of staff. We must consider whether the kind of stand-by arrangement about which we have talked really offers an acceptable work-life balance for ambulance staff. I understand that some staff in the stand-by stations approached the ambulance service to request a change to working practices. In addition, as my hon. Friend said, it is effectively a condition of employment at present that crews must live no more than 10 minutes away from the ambulance station. That can place restrictions on the recruitment pool that is available, and although that might not be a problem at the moment, it is important to think about the future. I understand that the PCT is keen to talk to local schools about recruitment to, and career prospects in, the ambulance service so that people continue to be encouraged to come forward.
	I hope that I can assure my hon. Friend that the review is about achieving better response times. It shows a desire to do more for local communities and to work in partnership with primary care. It is not a cost-saving exercise, and there will be £200,000 of additional investment. My hon. Friend asked where some of the changes came from. The community paramedic concept certainly arose from to a desire to provide fast response times to life-threatening emergencies in rural areas. She asked about the national roll-out, and such a system has been introduced successfully in several other rural ambulance services. As I said, staff numbers will be increased from 11 to 22.
	My hon. Friend asked about the air ambulance service. As she will know, it is funded by a charity, and it is not possible to give completely accurate figures. However, I believe that since the service commenced, it has attended about 8,000 incidents.
	My hon. Friend talked about the importance of public consultation and the local voice being heard. It is important to remember that the NHS has a legal responsibility to promote public involvement and consultation under section 11 of the Health and Social Care Act 2001. I know that an extensive public engagement process took place from July to October 2005, which included public and council meetings at which patients and the public were given the opportunity to comment. Given what my hon. Friend said about the petition, people certainly seem to know about the proposals. The PCT and the ambulance service examined closely the views that had been expressed when it considered the proposal to replace the stand-by working practice with the new way of working. As I said, several changes were made to the proposals at the pre-consultation stage. For example, there will be crews of two persons, rather than one.
	The public consultation that was launched last week will run until 18 September. When the consultation period has closed, the feedback will be considered by Durham Dales PCT, which will take into account the results of that consultation before making its final decision. I would really like to assure my hon. Friend. While she has obviously reflected some of the local concerns, it is important to remember that the consultation is guided by the attempt to improve services for patients while also seeking to improve the working lives of staff. It is important that the extra investment is accompanied by the sort of modernisation that we have talked about.
	At the end of the day, what is important is saving people's lives. If we can secure a system that achieves that while at the same time encouraging people to join the ambulance service and to feel that they have a good career structure within it, that is the way to proceed. I know that my hon. Friend has engaged with the local NHS on the way forward and I encourage her to continue to do so. I know that she will reflect her constituents' views during the consultation period and I hope that, in the end, we arrive at a system that improves patient services as well as the working lives of staff.
	 Question put and agreed to.
	 Adjourned accordingly at one minute past Eight o'clock.

Adjournment (summer)